China's rubbish mountain is lure to investors

Leo Lewis

From The Times

May 27, 2008

Heaps of household rubbish and clouds of industrial pollution in China could trigger a multi-billion-dollar investment rush that could rival the 2000 technology bubble.

Analysts are forecasting a surge of investment in a global “muck-to-brass” portfolio - listed engineering and waste management companies in the US, China and Japan rushing to meet China's urgent need to clean up its streets and skies.

The Chinese Government is now considering 180 municipal projects. Investment in incinerators alone will see more than $10 billion (£5 billion) spent over the next decade. Even greater opportunities may lurk in the commitment to better water treatment and burning coal less poisonously.

But much of the immediate investment excitement is focused on forecasts for China's high levels of household waste and the sort of measures the Government is likely to take in its bid to avert disaster. The Government's goal of incinerating 30 per cent of the nation's waste is playing strongly into that.

hSimon Powell, head of power research, at CLSA, the broker, said that, even by the most conservative of forecasts, China was soon going to be drowning in rubbish. Unlike the tech bubble, he added, the investment opportunities in waste offered huge sustainable earnings.

He said: “The coming investment gold rush will be centred on the emergence of a waste management industry in a country whose current arrangements resemble 19th Century New York and which is set to generate rubbish in quantities that are off the chart”.

Asian waste management companies such as Hong Kong-listed China Everbright and Tokyo-listed China Boqi are tipped as favourites in the muck-to-brass portfolio, though internationally-focused players such as Hera of Italy and Germany's Interseroh are also considered possible additions.

Mr Powell added that China already produced a third of the world's annual rubbish output and forecasts by the World Bank that this level will grow at about 4 per cent a year were felt to underplay dramatically the extent of the looming crisis - perhaps by as much as 50 per cent.

China's immense capacity to produce rubbish arises primarily from the size of its population and the flood of people to the cities.

With the emergence of a giant middle class throughout China's cities will also come a critical transformation of the rubbish itself. Rising wealth and urbanisation make rubbish less soggy and far more combustible. The ability of rubbish to burn above a certain temperature adds to the investment mix the lucrative prospect of producing electricity from the burning rubbish.