Cleaning Up in Polluted China

TAIPEI ( TheStreet) -- Not long ago a friend from Beijing emailed me a list of gripes about daily life in China's ever-challenging capital. But it ended with good news for the masses as well as for multinationals who sell to them.

"Air pollution, food safety, water pollution," my friend beefed. Heard it before. But then: "More and more people, including me, have started to install air and water purifiers in their homes."

That comment, though not entirely new, still hit me like mountain spring water. It means that common Chinese can solve some of the numerous health and habitability problems they face daily but usually can't control -- and that thousands of publicly traded appliance sellers can breezily sell millions of purifiers.

You can't exterminate people in a packed subway car to give yourself space or make your local petty official quit stealing money just by asking. But you can buy appliances to purify air and water at home.

"They ask, 'What can I do?' and 'What's in my control?'," says Louie Cheng, a former U.S. Army chemical defense specialist who runs the onshore pollution consultancy PureLivingChina. "They hear experts telling them it's unhealthy, and they're very concerned."

A brief reminder: Chinese cities such as Beijing are seriously polluted. The World Bank warns the blight will cost China 5.8% of its GDP, most of that because of health care.

Airborne particulates known as PM2.5 are the most talked about offender. In Beijing, Shanghai, Guangzhou and Xi'an their levels exceed World Health Organization guidelines, meaning increased risks of cardiovascular disease, cancer and premature death, Greenpeace says in a statement on its Web site.

"China's economy has skyrocketed, but at a price," Greenpeace says. "Power plants, factories and heavy industries are all belching out black, dirty air at the cost of our health and our environment."

But 35% of China's economy comes now from domestic consumption, not just factory exports. Chinese officials want to raise that percentage so the country pollutes less and depends less on bumpy export demand from Western markets.

Rising household incomes are already on the government's side. The 2011 average annual income of $4,940 grew by 13% in the first three quarters of last year, according to the World Bank and Chinese state-run media.

A lot of those consumers are buying air and water purifiers.

Two years ago the American market research firm Freedonia Group said in a report that China's demand for filters would grow 13.5% every year to 66.2 billion yuan ($10.8 billion) by 2014. Much of that would come from filters for vehicles and factories, the report said, but filters for home or office use are no hot air.

"As income levels grow, more people in China will be able to afford home water and air purification equipment, and rising demand for higher quality and extended life filters are likely to boost overall market value," the Freedonia Group's report says. "The demand for filters in consumer and other markets will be fueled by increasing personal income levels and rising concerns about air and water quality."

It's hard to find a purifier seller who doesn't know that. A year ago, as Louie Cheng tells it, the purifier mass market was dominated by Alen Air, Blueair and IQAir. Then everyone else figured out the market was huge and buyers willing to pay up to 20,000 yuan ($3,252) for a piece of equipment. That glut has people wheezing all the harder. "The market has become confused," Cheng says. "There's too much data. Everyone says they can remove 99% of pollution."

Among an estimated 3,000 sellers of water purifiers in China are Panasonic ( PCRFY) and Philips ( PHG). Panasonic seeks sales growth in China from 8.5 billion yen ($87.6 million) in fiscal 2011 to 25 billion yen in fiscal 2015. Philips has positioned itself since 2007 as a health care champion in China including as it works with the government to find out what people need.

You can't say it's all because of purifiers, but Panasonic's share prices rose 65% since a trough in November and Philips stock has grown 45% over the past year. Yet dirty water can't be bogging them down. In 2011, Chinese families bought 20 million water purification systems, the official China Daily newspaper online reports.

On the clean air side, Honeywell ( HON) sells purifiers in China, and they sit at the top of the company's China website for home appliances. Honeywell has invested $1 billion in China, where it employs 12,000 people and has subsidiaries or joint ventures in 20 cities. Its share prices have gone up 47% over the past year.

A top competitor is Sharp ( SHCAY), which also banners air purifiers high on its China webpage, dubbing them "protective spirits" and claiming world sales to date of 40 million units. Sharp's Nasdaq share prices are down from a year ago but up 137% over a past-year low in October. It must be something in the air.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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