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KPMG says further water market reforms could deliver big benefits for consumers

• The market needs and opportunities in the water sector are clear, the challenge will be to increase
  market efficiency

31 March 2008

Over the last few years, China has made great efforts to meet challenges of addressing water scarcity and improving water quality. This has included allowing foreign companies and investors to participate in most aspects of the water market, from delivery to treatment.

However, in order to maintain the rate of development towards key targets for water distribution and water treatment, particularly given continued rapid urbanisation, substantial further investment is still required. According to the latest report from KPMG, further market reforms would be beneficial in order to get the best from this investment.

Entitled "The Water Business in China: Looking below the surface", the report studies the latest trends in China's water business, identifies opportunities for international investors, and suggests ways to further improve the efficiency of the market.

"Enhancements to market operation through amendments to regulations, clearer allocation of key risks and more extensive use of robust public bidding processes could deliver significant benefits to consumers in both quality of service and water pricing over the long-term", says Matthew Walker, Head of Infrastructure and Projects Advisory at KPMG China.

The report also considers issues faced by individual projects, and suggests possible ways in which project sponsors could package projects to improve efficiency and make them more attractive to different types of investors.

From a funding perspective, the biggest force for change in the market is likely to be increasing investment by domestic insurance funds. Pension insurance funds and commercial insurance companies can currently invest in infrastructure projects, though their ability to invest is currently limited by a rigorous approval process. "With the expected relaxation of regulatory restrictions for investment, the domestic insurance funds will be a major force in the Chinese water market, given their low cost of capital and appetite for relatively low risk investments such as utilities", said Mr Walker.

"Overall, the water market is one of the most open and attractive infrastructure sectors in China for foreign equipment providers, contractors, operators and investors. Changing regulations and the increasing activity of local investors, will continue to provide both major challenges and opportunities for foreign market participants".

- Ends -

Please click this link to access the full report:

About KPMG

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 145 countries and have more than 123,000 professionals working in member firms around the world.

The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. KPMG International provides no client services.

About KPMG China

KPMG China has eleven offices (including KPMG Advisory (China) Limited) in Beijing, Shenyang, Qingdao, Shanghai, Chengdu, Hangzhou, Fuzhou, Guangzhou, Shenzhen, Hong Kong SAR and Macau SAR, with more than 7,000 professionals.

In 1992, KPMG became the first international accounting firm to be granted a joint venture license in China, and our Hong Kong SAR operations have been established for over 60 years since 1945. This early commitment to the China market, together with our unwavering focus on quality, has been the foundation for accumulated industry experience that cannot be rivaled, and is reflected in our appointment by some of the China's most prestigious companies.

As China businesses join the global economy and international companies seek to enter the China market, KPMG's blend of international experience and local knowledge makes us well-positioned to serve our clients in this increasingly complex, but exciting market.

Our single management structure for all our China offices allows efficient and rapid allocation of experienced professionals wherever the client is located in China. The flexibility of this single structure allows us to effectively serve companies across China - and we have many projects where staff from different offices work together on project under the control of a single nominated client partner, who has operational control of all resources.

Our business in China has established industry groups, enabling targeted, industry-specific experience to be delivered where needed. For our clients this focus on industry and country specific knowledge means we can deliver exceptional people with an intimate knowledge of your specific business issues, as well as an overriding commitment to strive for the highest quality services. KPMG has a leading position in the China market and our clients include the most prestigious and sizeable companies.

For media enquiries, please contact:

Pearl Fan
Senior Manager, Market Services
KPMG China
Tel: +852 2826 7111


© KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and KPMG Huazhen, a Sino-foreign joint venture in China, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

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