China will curb the craze for investing in water works, facilitate the building of wastewater pipelines and support the rational expansion of water treatment plants, a senior policy official said at an international forum held in Beijing on Friday.

Marking the change of direction, many city governments in January scrapped the water supply pipeline charge which was established more than a decade ago to subsidize water plants.

"The special charge spurred the rapid expansion of urban water works but has now outrun its useful life because some cities have an oversupply", said Qin Hong, deputy director of the Ministry of Railways' policy research center, at the 2007 China Water Congress.

The aggregate assets of China's water works surged from 13.3 billion yuan in 1990 to 134.3 billion yuan in 2003, a rise of nearly nine times, official figures reveal.

"The industrial emphasis has shifted to building new sewage pipelines and upgrading old ones," Qin told participating foreign investors who complained that their treatment plants were operating below efficiency because of insufficient wastewater supply.

China now has nearly 800 water disposal plants in more than 400 cities, but on average they only operate at around 65 percent of capacity. Currently only 56 percent of wastewater is treated every year. Nearly 20 percent leaks out, a much higher figure than the average seven to nine percent in developed countries.

An executive from Malaysia-based Ranhill Utilities Berhad complained during a panel discussion that wastewater shortages were a major headache for many treatment plants and might sour the relationship between local governments and investors.

Qin Hong assured more than a hundred participants from a dozen countries such as France, Germany, the Netherlands, Singapore and Japan that the government, well aware of what is happening, has moved to improve the situation.

Citing official figures, she said that China would input 600 billion yuan into water supply and wastewater treatment from 2006 to 2010, a significant portion of which will go to public utilities to build and upgrade wastewater pipelines, sludge disposal and water recycling.

"We hope this hefty government input will drive up private investment in this sphere and ease the bottleneck of treatment companies," Qin said.

China injected 6 billion yuan from treasury bonds into wastewater facilities in 1998, stimulating a private capital inflow of 150 billion yuan, official figures reveal.

The country has aimed to have at least 70 percent of its wastewater treated annually by 2010. However, nearly 200 cities still have no access to wastewater treatment.

"This indicates the country's market potential for water treatment is huge," said Yu Xiaodong with the China international Engineering Consulting Corporation.

The average return on investment for water industry in China has piqued the curiosity of many potential investors. As companies who have established business here tend to dodge the questions, the figure remain fuzzy.

Zhao Wei, deputy chief engineer with Singapore-based Hyflux Newspring Construction engineering Co., Ltd., called the profit margins "slim" but "up to projected targets". Hyflux operates waste water treatment plants and desalination projects in Jiangsu, Hebei, Liaoning and Shandong provinces.

Under a joint regulations released by the Ministry of Construction and the National Development and Reform Commission, the cap on net assets profit of water supply and treatment companies is 8 percent while that for foreign-invested, 10 percent.