China Controls Asia's Water Wealth

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According to Dr. Brahma Chellaney, author of Water: Asia's New Battleground, Asia is the driest continent (Africa is a close second).

Origination point
Geographically speaking, China controls Asia's water wealth (supply). Aside from the North and South Poles, the Great Himalayan Watershed is the world's largest freshwater reserve (that isn't frozen). Located in the Tibetan Plateau (China), the vast majority of Asia's water originates from this repository. From here, glaciers and rainwater eventually flow into river systems.

The problem...
Downstream from China, only four of 57 shared river basins have watershed agreements in place to help ensure cooperative use . Brahma Chellaney indicates the Chinese have been willing to share water statistics...but not water. He doesn't think this sets the stage for harmonized relations in Asia going forward. Of all the important rivers in Asia, the Ganges is the only one that doesn't originate in the Tibetan Plateau. Located at the source, China has the lowest water dependency ratio in the world. They are shooting all of Asia in the foot with poor quality. Sounds like if they [China] don't start sharing nice and cleaning up their act then disputes could escalate into battlegrounds.

Choking off the river systems
Much has been said about China's air and water pollution problems. Here's one statistic you may not have heard— 28,000 rivers in China have disappeared.

Over the past few decades, China has built numerous dams that are multiples larger than Hoover. Needing to go even more gargantuan this time around, the Chinese are currently working a South-to-North Water Diversion plan for $80 billion, blasting and tunneling through thousands of miles of Tibetan Plateau, which is fast becoming one of China's new mining centers. If it works, water will be channeled to a better area 50 years from now. But who's to say a billion people won't be drinking atmospheric water by then. Do you need clean air for that?

Channeling water from agriculture
Brahma Chellaney describes Asia as the irrigation hub of the world; 80% of Asia's water is channeled into agriculture. Asia farms an estimated 220 million hectares of irrigated land, twice as much as the rest of world combined! In the last twenty years Asia has transformed from food importer to food exporter thanks to irrigation.

One of Asia's key challenges going forward is to produce the same amount of food with less energy, land, and water. The Toro Company's hoses, valves, and sprinklers help make sure water gets exactly where it needs to go. Intent on boosting its presence and sales in Asia, Toro acquired Xiamen Xianfeng Water Saving Equipment (located in China's Xiamen city) back in September. Drip irrigation has evolved to integrate advanced control systems and software— all working together to help farmers grow larger crops with less.

Can the profit motive clean up China's act?
Veolia Environnement
, through its subsidiary OTV-Kruger, has been active in China's drinking and waste water industries since the 1980s. Currently doing business in 20 of 34 provinces, Veolia is supplying water to 43 million people in China. Hainan, Shanghai, Shenzen, and Tianjin have all signed on for management contracts spanning 20 to 50 years. Clearly, China's critical water infrastructure is for sale.

Listed on Euronext, Suez Environnement was spun off from GDF Suez (35% owner) back in 2008. Over decades, Suez has worked its way into ownership stakes in Sichuan Dayi Water (Sichuan), Macao Water (Macau), and Chongqing Water Group (Chongqing). This means it is fully entrenched into China's water treatment and supply industries. From the water user's perspective, availability, cost, and quality are of the utmost importance. Keeping shareholders and customers happy is a tightrope Veolia and Suez must walk. Looking back on last five years, let's hope the water has performed better than the share prices (each down over 25%).

Final thoughts
From the outside looking in, both Veolia and Suez seem to have benefited from privatization in China. For better or worse, it would appear China and those two (Veolia and Suez) are in water beds together. Let's hope they didn't marry for money, because that would end badly for Asia's freshwater supply.

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Daniel Cook has no position in any stocks mentioned. The Motley Fool recommends Veolia Environnement (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. mini-Mutual Funds are offered through Daniel T. Cook & Partners, LLC, registered with the State of Florida as a (RIA) Registered Investment Advisor. Office hours M-F 8am to 8pm. Telephone: (561) 596-5067. Custodial and clearing services are provided through Scottrade Advisor Services, member. SIPC.

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