Asia Environment

INDUSTRY OUTLOOK

China's 11th 5-year plan (2006 – 2010) called for an investment of RMB200 billion in water infrastructure projects to raise wastewater treatment coverage to 70% in major urban areas and 30% in small cities. In the 12th 5-year plan (2011-2015) release in the No.1 document of 2011, China aims to increase its spending to RMB4 trillion in the next decade to improve on its water infrastructure. Since privatization of the industry in 2002 by the Chinese government, investments in this area resulted in a coverage of wastewater treatment from 36% to 70% in 2009. Nevertheless, there is still room for expansion in the urban market, in addition, the rural market and the western regions which has been left very much untapped. With the conviction the Chinese government has, in the 12th 5-year plan, we would expect continuing growth in this market.

While the focus on the water supply and wastewater treatment sector remains unchanged, we would expect an increasing importance in water recycling and desalination. This is because despite the investments in these areas, there is still a chronic shortage of water and therefore the attention will be turned to water resource management. The efficiency of these plants will also be a central focus over the next few years driven by higher standards of water treatment for drinking, discharge and water recycling.

MAJOR MILESTONES COVERED DURING THE YEAR

In 2010, the Group managed to substantially complete the Yueyang Economic Zone ("Yueyang EC"), Danyang and Zhoukou projects and is currently at testing and commissioning phase. When commissioned, this will add on an additional 175,000 metric tonnes (MT) per day of processing capacity. Our existing capacity as at 31 December 2010 stands at 685,000 MT per day which is fully owned by the Group and another 345,000 MT capacity which the Group owns a minority interest. We would expect that revenue from this segment will continue to play a significant role moving forward to provide a stream of stable income for the Group.

During the year, we have also embarked on the development of our new operational HQ in Yixing as part of the local governments' plan to streamline the concentrations of the Environmental Industries in Yixing city. This development is expected to stretch over the next 2 years in phases and in tandem with our business expansion plans.

During the year, we had managed a private placement to raise approximately RMB68 million which was injected into the new projects. We have also been able to rollover certain loans and procure an additional RMB103 million of new loans to finance the operations of the Group.