About 50% of the country's wastewater is released into rivers and the sea without treatment.

In FY08, 13.2mn tonnes of Chemical Oxidation Demand (COD) from industrial and residential water consumption are being discharged into China's rivers and the sea annually, in addition to 1.3mn tonnes of ammonia and nitrogen.

SEPA states that out of 161 emergency incidents concerning the environment in 2006, 59% involved water.

The World Health Organization (WHO) and SEPA suggest that water scarcity due to pollution costs China RMB95-199bn pa. Pollution-related scarcity is believed to be the cause of drought, which cost China another RMB25bn pa through loss of grain and other crops.

Overall, the World Bank and SEPA estimate that water shortages, inefficient water usage, and pollution could cost 8-10% of the nation's GDP.

Eoin Treacy's view Water is probably the ultimate supply inelasticity theme but it is a difficult one to make money from. Most water resources as controlled by governments and privatization is viewed with suspicion in a number of countries. Nevertheless, with China committed to increasing investment in water infrastructure there will be opportunities in this sector.

China Everbright International and Hyflux both retested their pre-crisis highs in late 2008 and have been consolidating their impressive advances since. China Everbright International found support in the region of HK$3 from May and has sustained a progression of higher reaction low since. It is currently ranging in the region of the 200-day MA and needs to sustain a move above HK$4 to indicate demand has regained dominance. Although Hyflux bounced well from the June low, the 10-month progression of lower rally highs remains intact and a sustained move above SG$3.40 is required to indicate a return to demand dominance. Sound Global has a relatively similar pattern.

China Water Affairs Group, Guangdong Investments and Beijing Enterprises Water Group all rallied impressively from their lows but have lost momentum and pulled back sharply from their April highs. They have all now moved back above their 200-day MAs and need to hold above their respective June/July lows for the upside to be given the benefit of the doubt.