Water pollution has become increasingly alarming in the PRC due to rapid urbanisation. According to the 2002 annual report of the State EPA , municipal and industrial wastewater discharge in 2002 amounted to approximately 23.23 billion tons and 20.72 billion tons respectively and the total volume of wastewater discharge in PRC has increased from 39.53 billion tons in 1998 to 43.95 billion tons in 2002.

The limited volume of clean or treated water, together with an increasing discharge of wastewater in the PRC underscores the potential within this industry of providing effective water and wastewater treatment solutions.

We believe there is a potential market for wastewater treatment solutions in the PRC in the near future.

Growing Emphasis placed by the PRC Government on Waste and Wastewater Treatment

In 1984, in recognition that water shortage and water pollution issues in the country would have an adverse impact on the economic development of the nation, the PRC government promulgated the Water Pollution Control Law which was revised in 1996 with some majoramendments being made. In 1988, in its continued efforts to combat water shortage and water pollution issues, the PRC government promulgated the PRC Water Resource Laws (1988), which was revised in 2002, to regulate water resource management. Since then, the PRC government has promulgated various environmental protection regulations such as the Implementation Rule of WPC Law in 2000, relating to wastewater treatment. In addition to promulgating environmental protection laws and regulations, the PRC government has also taken steps to strengthen the implementation and enforcement of these laws and regulations.

According to the National 10th Five-Year Plan for Environmental Protection , the PRC government will spend over RMB270 billion on water pollution prevention in the five-year period commencing from 2001 to improve water quality in the PRC, and increase the number and improve the quality of wastewater treatment facilities in the PRC.

We believe the growing emphasis placed by the PRC government on environmental protection, coupled with the stringent enforcement of regulatory requirements, would spur greater demand for water and wastewater treatment facilities in the PRC.

Flow of International Capital intoWastewater Treatment Industry in the PRC

According to information from the World Bank, international funds have been applied or have been committed for application in wastewater treatment projects in the PRC. Our Directors understand that a significant amount of international funds have been allocated to help wastewater treatment in major PRC cities in the next decade. We believe that these new projects will provide business opportunities for both international and local players in the PRC's environmental protection industry.

Entry into WTO and the Hosting of the Olympics Games 2008 Beijing ("2008 Olympics")

We believe that with the PRC's entry into the WTO, and their hosting of the 2008 Olympics, the PRC government would place greater emphasis on the improvement of environmental conditions and standards in the PRC. This, in turn, we believe, will spur capital spending on projects relating to environmental protection.