The Booming Bottled Water Business Represents Everything That's Wrong With Government Regulation In China

The bottled water business has boomed in China as concerns about contaminated water sources persist.

Sales of bottled water are expected to surge to $16 billion by 2017, from $9 billion last year, according to Euromonitor International.

"This water story illustrates how much China's economy is distorted by unhealthy government power," writes Andy Xie, independent economist and former Morgan Stanley chief Asia-Pacific economist, in Caixin Online.

Environmental pollution has caused people to eschew tap water for bottled water. Xie attributes the pollution to the local governments' desire to draw in investment as turning a blind eye to the pollution lowers production costs. From Xie:

"As demand for bottled water grows, of course, it is an investment opportunity, too. Hence, the safety of bottled water becomes an issue. If one is willing to sacrifice the environment to attract investment, why not lower the standards for bottled water? That is indeed a serious issue. Consumers have to guess which bottled water is safe.

"A further story is how bottled water has become a source of revenue. As some suppliers have become successful in the market, governments find it more profitable to tax them. Hence, the price of bottled water is rising."

This additional revenue also goes towards investment, as local governments have thus far focused on feeding the beast and meeting GDP targets.

The bottom-line according to Xie, is that all of this is done to "satisfy the government," and the real reform that China needs is limited government control.