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The Water Crisis Looming Over Beijing

By Tom Dyson, publisher, The Palm Beach Letter
Monday, August 11, 2008

One morning last spring, millions of people in eastern China woke up to find stinking, green sludge oozing from their taps. It looked like blended seaweed and gave off a rotten odor that choked them if they got too close...

Lake Tai is China's third-largest lake. It's in the Jiangsu province, near the East Coast of China, 70 miles upstream from Shanghai. About 30 million Chinese rely on Lake Tai for drinking water. But in May 2007, pollution caused an algae bloom to cover the lake.

For 10 days, 2 million people who live on the shores of Lake Tai had no drinking water. It caused a panic. The price of a two-gallon jug of bottled water in the nearby city of Wuxi jumped from $1 to $6.50 overnight.

For hundreds of years, the locals considered Lake Tai the most beautiful place in China. It held so many fish, they tickled your ankles when you dipped your feet in the water. The richest people in China moved here and built stunning gardens on its banks.

But over the last half century, the shores of Lake Tai have turned into an industrial zone. Thousands of paper mills poured toxic chemicals into the water... so did cement factories, chemical plants, and textile companies. These chemicals killed the fish and removed all the oxygen from the water.

Now the rivers and tributaries that flow from the lake run red or black... and local workers won't tend to their rice paddies without heavy gloves because the water peels away their skin.

Lake Tai is not an exception in China. The Chinese grade water quality by five categories. Grade one is safe for drinking. Grade three is suitable for everyday human use. Grade five is polluted water and not even suitable for agriculture.

A recent survey of seven of China's major river systems by the nation's State Environmental Protection Administration showed 58% of China's water is grade three or below. And 28% of the water fell into grade five... totally useless.

Of China's 662 major cities, 278 have no sewage treatment plants. Only 23% of China's sewage is treated... The rest is discharged into rivers and lakes.

China is moving aggressively to reverse its widespread environmental damage. The government is starting to clamp down hard on offenders... dishing out jail time, handing out fines, and closing thousands of factories.

Take Lake Tai, for example. The rich industrial city on its shores – Wuxi – has kicked out 2,800 companies and levied huge fines on the remaining factories. The government told them to either clean up or leave. Now the city is calling itself a "green" city and says the lake will be clean again in 10 years.

The Chinese government has upgraded the State Environmental Protection Administration to the status of full ministry and given it power to seize salaries of executives at polluter firms. The government changed the law to allow class action lawsuits by victims of water pollution to seek compensation directly from water polluters... And it scrapped the maximum $140,000 fine for water pollution.

But here's the real kicker: The State Environmental Protection Administration estimates China needs to build 10,000 wastewater treatment plants to achieve 50% sewage treatment rates in China.

But the government's five-year plan – ending 2010 – requires Chinese cities to treat 70% of their wastewater... which implies China must build more than 10,000 new wastewater treatment facilities over the next few years. Chinese authorities may spend as much as $125 billion building these facilities...

In my next column, I'll tell you about Singapore's water industry and give you a list of Singapore companies working to clean up China's water...The Singapore water industry is my favorite way to profit from China's drive to clean up its water. Singapore is a world leader in the water business... and its water companies do most of their business in China.

Good investing,


Market Notes

Novartis (NVS)... Big Pharma
Wrigley (WWY)... Big Candy
Anheuser-Busch (BUD)... Big Beer
General Mills (GIS)... Big Food
Johnson & Johnson (JNJ)... Big Health Care
McDonald's (MCD)... provides Big Health Care with customers 
Genentech (DNA)... biotech
Amgen (AMGN)... biotech
NPS Pharma (NPSP)... biotech
Cal-Maine Foods (CALM)... eggs
Baxter (BAX)... medical equipment
Covidien (COV)... medical equipment
H&R Block (HRB)... tax preparation
AutoZone (AZO)... auto parts
Quanta Services (PWR)... infrastructure
Western Union (WU)... money transfers
Nippon (NTT)... Japanese telecom
Wal-Mart (WMT)... a bull market in the "basics"


Cemex (CX)... cement
CBS (CBS)... media
News Corp (NWS)... media
Wendy's (WEN)... fast food
Sony (SNE)... electronics
Teekay (TK)... oil shipping
Playboy (PLA)... read it for the articles
Aries Maritime (RAMS)... shipping
McClatchy (MNI)... newspapers
Reliant Energy (RRI)... utilities
Consolidated Edison (ED)... utilities
Constellation Energy (CEG)... utilities
Archer Daniels Midland (ADM)... agribusiness
Atlas Pipeline (APL)... oil & gas pipelines
Magellan Midstream (MGG)... oil & gas pipelines
Cresud (CRESY)... Argentine agriculture
Toyota (TM)... Japanese automaker
Daimler AG (DAI)... German automaker
Templeton Russia Fund (TRF)... Russia is busting 
Advanced Micro Devices (AMD)... semiconductors
Whole Foods (WFMI)... expensive groceries
Electronic Arts (ERTS)... video games
Nickel, Zinc, and Orange Juice

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