Water Conservancy and Water Affairs

Industry Trends & Challenges

▶ Industry Trends:

• Unprecedented investment scale: During the 15th Five-Year Plan period, national water conservancy investment is expected to exceed 7 trillion yuan, showing significant growth compared with the 14th Five-Year Plan, setting a new historical high

• Investment focuses on four major areas: national water network backbone projects, flood control and disaster reduction, water ecological restoration, and smart water conservancy.

• Strong policy support: Water conservancy construction is placed at the national strategic level and included in the "two-pronged" construction (national major projects and key sector projects)

• The funding guarantee mechanism is diversified. In addition to central budget investment and local government special bonds, ultra-long-term special government bonds (with a scale of 800 billion yuan in 2025) provide precise support, and social capital participation is actively encouraged.

• Rich project reserves: a number of major projects such as the follow-up projects of the South-to-North Water Diversion, the Jianghan Water Diversion, the Northern Bay water resources allocation, and the hydropower projects in the lower reaches of the Yarlung Zangbo River are accelerating construction or commencing one after another.

• Market structure is layered and differentiated: showing a pattern of 'state-owned enterprises leading, private enterprises supplementing.' Large state-owned enterprises such as PowerChina and China Energy Engineering Group dominate super-large projects due to their comprehensive advantages; private enterprises occupy the market in medium and small farmland water conservancy and urban water operation and maintenance fields.

• Redefining the profit logic: The traditional model that relies on construction profits faces the challenge of 'more volume without more profit,' with profit margins being squeezed. Leading companies are breaking through in two ways: first, by transforming into an integrated 'investment, construction, and operation' model to obtain long-term stable operational income; second, by transforming into high-tech service providers, offering high value-added services such as smart water management, AI models, and professional operation and maintenance, thereby achieving higher gross margins.

▶ Main Challenges:

• High technical complexity and urgent need for innovation Water conservancy projects involve complex geological and hydrological conditions and challenging construction technologies (such as mass concrete and steep slope treatment). With high technical barriers, the industry is also transitioning towards intelligence and sustainability, requiring enterprises to continuously innovate and introduce new technologies. For example, the development and application of BIM forward design, intelligent construction equipment, and new environmentally friendly materials impose higher demands on enterprises' technological accumulation and R&D investment.

• Shortage of high-quality talent: The development of the industry urgently requires compound talents who not only understand water conservancy engineering technology but are also familiar with digitalization, intelligence, project management, and capital operation. At present, the shortage of high-quality technical and management talents has become one of the bottlenecks restricting the development of the industry.

• Increasing pressure on environmental protection and ecological restoration With the rise of environmental awareness across society, the environmental constraints faced by water conservancy projects are becoming stronger. Projects need to strictly implement environmental protection measures throughout planning, design, and construction processes to minimize the impact on the ecological environment, and sometimes may even need to carry out ecological restoration work simultaneously or in advance, which increases the complexity and cost of the projects.

• Intensified market competition and regional barriers The market prospects attract more companies to enter, leading to increasingly fierce market competition, which may result in issues such as price wars.