Water industry competition was gradually becoming sensible in the cities in 2006. The center of competition had shifted from single unit of the industry to the whole industry line. Under such condition, competitors in the market had to integrate the whole industry. The division and improvement of main industry units was emerging.

Strategetic investment and operation groups in water industry were the flagship of the water industry line in cities as well as the core power to promote industry reform. Such groups controlled investment, stock, operation and management. They were also the biggest shareholders of service companies. Therefore, they were the bridge between the government and the grassroots. Their development determined the industrial growth and the marketing improvement.

Industrial integration centering on investment groups found expression in two aspects. One was the integration on operation and technology made by capital strategetic investors such as the purchase of Guozhong Water Authority by Beijing Capital Co., Ltd. The purchased company would be greatly enhanced in its technological integration. Its cooperation with Tsinghua University would further improve its technological capability. Representatives of foreign water authorities such as Veolia Water and Sino-French Water Development had appointed local staff to be heads of the companies, which would gradually minimize the cultural gap and the cost. The other was that engineering investment companies had upgraded their financing mechanics, which would greatly increase and magnify their capital capability. In 2006, Godden State collected 150 million USD and made itself the biggest financing program in the city water industry, which would make its marketing and technology much more competitive.

Sound Group has successfully got Epure International listed on the Singapore stock market, which opened two financing channels and has strategically transferred it from an engineering group to an investing shareholder group. Other capital operating models include the well-known Sichuan environmental protection company China Sciences, which has collected 99 million USD, and Price water house Coopers, which has collected 60 million USD.

2. Chinese water industry greatly internationalized.

Internalization was one of the most shining characteristics of Chinese city water industry in 2006. Such tendency found its expression in the following three aspects.

One was the attention from international counterparts. The International Water Association Conference successfully held in September 2006 showed how attractive Chinese water industry was to the international counterparts. China, the biggest water industrial market in the whole world, showed its unique merits to the foreign water industrial organizations, acknowledged experts and companies that participated in the conference.

The second was the bright future of international capital market. The World Bank which was studying Chinese water industry highly praissed Chinese city water industrial market on its rapid growth in demand and on its good payment ability and credit. International policy financing institutions such as IFC, ADB and Merrilynch showed their confidence in Chinese water market through investing into Chinese well-developed environmental companies like Sound Group, Price water house and Godden State. International capital market represented by Singapore Stock Exchange was confident in the Chinese water industry stocks.

The third was shown through international companies who have highlighted the importance of Chinese market. Suez Group, representative of international water companies set its office in Shanghai in 2006 to strengthen its investment deciding capability. Berlin Water Industry was also planning to set its office in Shanghai. More such companies were studying Chinese water industrial market.

3. Reform within water service met obstacles.

Chinese environmental problem was becoming more and more serious. Environmental incidents were gradually socialized, which has greatly enhanced governmental attention on the safety of water supply and on the pollution-related problem. Due to safety problems, the government has to reconsider the responsible body and reform pattern of city water industry. Concessionary operation was a pattern fitting Chinese city water industry. However, mistakes in several reform fields have led to threats at public safety.

On the other hand, with the reform going on, interests belong to the original beneficiaries facing more and more challenges. What was more, some program failed and the safety of water supply was highlighted by the state. All factors above result in more question on the reform orientation. Obstacles to the reform led to governmental and industrial arguments on the reform. Some proceeding programs had to be suspended, which inevitably became the focus of the market in 2006.

4. Surveillance on cost drew the public attention to price.

Price was the thread linking main units. Therefore, increase in price, enhanced by governmental policy of elevating the price of resourceful commodities, soon became important hot news in the industry and become focus of public attention. In 2006, more and more questions were aroused on the continuous increasing of polluted-water processing fee and drinking water price. Efforts from the government and companies have reduced the pressure on a certain level. However, the conflict between cost and price has become more and more serious in some cities such as Nanjing.

In November 2006, National Development and Reform Commission asked suggestions from the public on Surveillance Methods on the Cost of City Water Supply (Pilot Version). Four principles on the surveillance were presented, which were legal principle, sensible principle, pertinence principle and rights-responsibility producing principle. Such principle reassured the composition and content of the cost, which was surely to bring important and positive effect on the city water industry, for which water supply pricing mechanism was urgently needed.