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DWS sees opportunity in China’s waste

After the coronavirus spread is under control, the firm believes China's focus will turn to increasing investment in sanitation and waste treatment.

“This recent crisis will increase emphasis in the area of health and waste sanitation systems in China. Impact investments in this area may provide strong, measurable results because of the surge in demand as well as financing,” according to a recent report from DWS.

Inevitably, the coronavirus in China is putting more focus on the need to address sanitation through proper waste treatment, as well as to upgrade and improve health services, the report noted.

“There are also indications that the Chinese government is doubling down on enforcing regulatory compliance of sanitation for the sake of public health,” the report said.

With the government strengthening regulations and enforcement regarding the quality of food, as well as the proper treatment of sewage and industrial waste, the need for Chinese clean energy and environmental investments should increase, the firm believes.

Moreover, the report noted that “we witnessed the clear changes that happened subsequent to the SARS epidemic where more resources and services were put in place for city sanitation, waste management and hospital waste treatment, which improved visibly not only in mainland China, but also in Hong Kong”.

FSA contacted the firm for more information but it was unable to reply in time for publication.

A firm that runs perhaps the only waste-focused fund is Fidelity, which launched a waste and water fund in Europe last year and is awaiting approval from the Singapore regulator to sell it to retail investors. The fund will invest at least 70% in water and waste management companies globally which maintain sustainable characteristics, according to the factsheet.

Fidelity Sustainable Water & Waste Fund vs average performance, since inception

Source: FE Fundinfo. In US dollars. Note: the fund does not have a benchmark.

China’s waste market

DWS sees a link between a stronger focus on sanitation and the recycling of industrial waste.

“China’s volume of waste is projected to be double America’s volume of municipal solid waste by 2030. However, the intensity and density of the cities’ population will create substantial demand in concentrated areas for the treatment of the waste produced,” according to the DWS report, citing information from a World Economic Forum report.

As a result, a key focus for China to reduce the accrual of waste has been to reuse and recycle industrial waste.

In 2015, approximately 65% of all the solid industrial waste in China was reused, yet the goal of the “Made in China 2025” plan was to increase the recycling rate up to 79% by 2025, the report noted.

“To that end, the government is encouraging financing of projects by lenders to build out infrastructures to address waste treatment. To a large extent the recycling, reuse and treatment of waste is driven by the need to address where to dispose of the waste.

“This is predominantly driven by the ‘cost of disposal’ and the health hazards of piling up waste, as opposed to just the economics of the value of the by-products generated by the recycled or treated waste,” the report noted.

Part of the Mark Allen Group.