Resource shortages are opportunities for profit. The greater the shortage, the greater the opportunity. China needs water and lots of it. It’s a key resource for growth. There is a huge shortage of water in China. A person in Beijing has access to less water than a person in Israel.* The water that is available is mostly not usable. People need clean water, industry needs clean water, the environment needs clean water. China needs much more clean water than it has.
Have you ever wondered why there’s no shortage of iPods? It’s a rhetorical question; of course you haven’t. And, there’s no shortage of socks anywhere. Why is that? The answer is quite simple. The market price mechanism has been allowed to work and producers have adjusted their output based on their individual assessments of what the market needs. They make this output adjustment based on the most effective measurement ever devised to determine need. The price mechanism is effective and quite brutal. It is the effectiveness which commends it here and the brutality is only, with its cleansing effect on the market, an incidental benefit.
Thankfully, no one (government nor individual) has declared iPods or socks to be a fundamental human right. Stick with me for a moment (or a couple of paragraphs) Declaring things to be a “right” is often a precursor to government involvement and government is particularly ill-suited to solve the water problem. Removing this requirement from the market by declaring it to be a “right” and above the sordid touch of the market means that the folks most capable of satisfying the requirement are no longer interested. If you can’t make money, the market leaves it to government to do.
Government, in any country, is the organization least capable of answering such a requirement. If government could solve the water problem, it would have been solved long ago. In fact, I’ll bet that if we simply reclaimed all the money spent on government conferences about water in the last ten years, we would have enough money to build sufficient water infrastructure to solve China’s water problems. But, we can’t reclaim that money, and government won’t solve the water problem.
The fastest, cheapest, most effective, and most efficient solution to the water problem is to let the market solve it. People will pay for water and, in fact, they do always pay for water. Payment is either through taxes (for the government to solve the problem) or it is directly via the market. The people and organizations most capable of solving the issue don’t work for the government. Businesses solve problems for profit. Government employees solve (different) problems for different reasons.
The good news is that China is already recognizing that the answer must come at least partially from commercial firms. There have been recent investments by foreign firms, but there’s plenty of room for more. And, there’s plenty of breadth in the opportunity. Profits in water don’t just come from selling bottles of water to consumers. There’s work to be done building pipes, valves, pipelines, treatment plants, fixtures, filters, and all the infrastructural items necessary for clean water. Some estimates say that thirty percent of residential water distribution in China is lost to leakage. A business that could reduce that leakage for less than the cost of building the replacement capacity would surely find an opportunity for profit.
As the water is cleaned up, as it is wasted less, and as it becomes more plentiful, leisure water sports will become a secondary opportunity. China has the necessary water “infrastructure” to support leisure water sports; i.e. beautiful lakes, rivers, and coastline. What’s missing is a group of people with the time and money to enjoy it. That’s coming, though, and it’s not that far off.
Resources and resource shortages will shape China’s growth over the coming years. Understanding those resource shortages will help you find the profit opportunities in them. Water is a critical resource in short supply here. There are correspondingly large business profits to be found in supplying that critical market requirement.
* - “Thirsty China: Its key resource constraint is water”, Andy Rothman, CLSA, 2006
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