Shenzhen Water Group, managed by world leading water company Veolia Water, began its nationwide expansion yesterday through a newly founded investment arm.

The city's largest water supplier announced the establishment of Shenzhen Water Investment Co, a joint venture with Shenzhen Tonge Group, a domestically listed public utility constructor and property developer. The new company is mainly engaged in urban public utility investment, including investing, constructing, running and maintaining the treatment systems for tap water and waste water.

Shenzhen Water Group invested 210 million yuan (US$25.4 million) in the joint venture for a 70 per cent stake.

Describing the partnership as a "win-win deal," Huang Chuanqi, board director of Shenzhen Water Group, predicted that the assets of the new company would surpass 5 billion yuan (US$603.9 million) after three to five years' growth.

"Shenzhen Water Investment will become the country's strongest water investment and operating company in three to five years, that is projected to supply 2 million tons of water and handle 1.5 million tons of waste water daily. It could serve at least 20 million people then," Huang forecast at the founding ceremony of the new company.

Shortly after its setup, Shenzhen Water Group injected its quality water service project in Jiaozuo of Central China's Henan Province and two local projects into the joint venture.

The project with Jiaozuo Water Co, in which Shenzhen Water Group acquired a 70 per cent stake, recorded nearly 9.7 million yuan (US$1.18 million) profit last year, which is estimated to rise to 10.1 million yuan (US$1.22 million) this year.

The two local projects are also expected to contribute some 8.7 million yuan (US$1.05 million) and 150,000 yuan (US$18,116) in profits to the new company this year.

Apart from the assets from its parent company, Shenzhen Water Investment has attracted the interest of many mainland cities.

It won a 25-year franchise to run the water supply system in Kaiping, Guangdong Province and signed contracts with two water companies in Changzhou of East China's Jiangsu Province and Chizhou of East China's Anhui Province.

It also signed letters of intent with two cities in Central China's Henan Province to acquire local water companies; 265 million yuan (US$32 million) investment may be involved.

As a successful foreign player in China, France-based Veolia Water, associated with its Chinese partner - the investment company Beijing Capital Group - acquired 45 per cent of Shenzhen Water Group for US$400 million at the end of 2003 in the largest water project purchase ever in China.