Soft drinks companies are likely to be major beneficiaries of improvements in China's water supply, writes Tamara Vantroyen. Although partly as a result of the erratic supply and poor quality of its water, China has proved a strong market for bottled water brands, with both Coke and Pepsi establishing a strong presence.

It is not just a rumour anymore: China is officially upgrading its water quality, a move welcome to drinks manufacturers that rely on and control costs through guaranteed clean water supplies. China launched new drinking water standards in June, raising the number of prohibited water pollutants from 35 to 101.

The recent Harbin disaster - when deadly toxins released into the Songhua river by an oil refinery explosion raised benzene levels to 100 times the safe level leaving 3.8m people without water for five days - has served as another wake-up call for the Chinese government. Its unusually forthright order to go public with the news came directly from the State Council, headed by prime minister Wen Jiabao. The day after the news broke Wen met his ministers to stress the environmental problems facing China. Furthermore, Beijing's recent decision to start building a string of environment-friendly 'eco-cities' will bring drinks manufacturers one step closer to having good quality tap water at their immediate disposal.

All this is good news for drinks manufacturers with bottling plants in a country with one of the smallest water supplies per person in the world, and where millions regularly face water shortages. And for manufacturers with plants in Chongqing, Hangzhou, Guangzhou and Shanghai, the future is looking even rosier as these cities aim to bring their tap water up to with European Union drinking standards.

The increasing availability of clean tap water is manna from heaven for companies like Guangzhou Wanhao Foods, whose jelly juice - branded '18 Channel' - is promoted as a health drink. "We're growing steadily, with an annual turnover of over US$19m," says overseas business development manager Kathy Lee. "However clean water is a major factor in our day-to-day costs. We operate to ISO 9000 standards, so can't afford to cut corners, especially as we use 18 Channel to promote a healthy lifestyle. As the authorities improve the water quality it means fewer headaches for us."

It's a view echoed by Natalie Du, import and export sales manager at the Hangzhou Choisun Tea Sci-Tech Co. "Our Pure Green Tea - which is exported to the USA, Europe and Southeast Asia - contains nothing but purified water, honey, vitamins and of course green tea," Du said. "The quality of water is essential, and as the bottled tea only has a shelf life of 10 months it is important that nothing should destabilise the contents."

In Shanghai, the Foodon Enterprise Co. produces carrot, greengage, pumpkin and mulberry juice principally for the Japanese market. "The city has been expanding so fast, infrastructure has not always been able to keep up," says Foodon spokesperson Fion Huang. "Japan is well known for its rigorous quality standards - clean, reliable and relatively inexpensive water allows us to provide a competitively priced product, which we certainly need to stay ahead in the market."

According to reports published by China's State Environmental Protection Administration, 75% of river water flowing through Chinese urban areas is considered unsuitable for drinking or fishing, and 30% is not even suitable for agriculture.

Unsurprisingly, cleaning this up is expensive - leading Chongqing, Hangzhou, Guangzhou and Shanghai, for instance, to invest heavily in deep-processing technology, according to the China Water Association (CWA).

Deep-processing uses ozone and active carbons to kill organic pollutants. Its installation is expected to cost billions of dollars. Chongqing alone is to spend US$556m before 2010 to purify its water. All this is hardly surprising in the light of a recent test conducted by the Ministry of Science and Technology that showed tap water sampled in a downtown residential area contained 80 strains of the 101 forbidden pollutants. Looking at the nation as a whole, around 300m people drink contaminated water on a daily basis, claims China's Ministry of Water Resources.

Meanwhile, partly as a result, China is one of the world's largest importers of bottled water. According to a Beverage Marketing Corporation survey, China was the world's third largest consumer of bottled water, guzzling 4,668.3m gallons in 2004, up from 3,056.9m gallons in 1999.

Coke and Pepsi both have a strong foothold in the bottled water market - Coke with its Bon Aqua brand, and Pepsi with Aquafina. Coca-Cola - which controls 15% of the soft drinks market in China, eight percentage points higher than Pepsi - predicts its water line will surpass its soft drink line within a decade. Both of these soft drinks manufacturers' advantage is that they use purified tap water as their bottled water, allowing them to enjoy lower manufacturing costs than a number of their competitors. Nestlé also entered the water line in 2005 with its herbal mineral water.

Also, drinks manufacturers are not just relying on the Chinese government to provide them with clean tap water, as they are taking the matter into their own hands. In China, as throughout the world, Coca-Cola is buying farmland to access wells and is engaged in a constant search for new water supplies and purchasing water rights.