BEIJING, April 1 (Reuters) - China is to launch an action plan to protect the quality of its scarce water resources after years of rapid economic growth that have left much of its water supply too polluted for human consumption or for growing food.
The plan, expected to be published this month, will require firms in heavily polluting industries such as paper mills and dye and chemical plants to treat discharged water and it will set higher penalties for those that violate rules on discharging pollutants, according to official media reports.
One third of China's major river basins and 60 percent of its underground water are contaminated, according to official data, posing a major threat to public health and food security.
The long-awaited action plan is expected to be approved by the cabinet this month to give it legal powers to hold polluters and local authorities responsible.
"The plan will ring an alarm bell with local authorities who did little to protect water and will help to remove the regional segregation that constrained the growth of the water treatment business," said He Yuanping, executive vice president of Originwater, a private clean water technology company.
He estimated the treatment business could be worth more than 2 trillion yuan ($323 billion) in terms of the total investment involved, including assets owned by local governments.
Under the plan, environmental authorities will monitor the discharge of major pollutants, with a remit to prevent any of the country's water being classed worse than "level five" by 2017.
Level five denotes water that is so polluted it is toxic for human skin, although it can be used for irrigation.
Experts say the plan will improve China's urban drinking water system, help prevent industrial discharge into rivers, lakes and underground water and expand water infrastructure in rural areas.
Nearly half of the rural population has no access to safe drinking water.
It will boost the business of water treatment companies, An Xin Securities said in a report, although it added that 30 percent of such firms were unable to make a profit at current low water prices.
China has raised charges for waste water discharge, but He at Originwater said they were still not high enough to cover the cost of treatment.
To address that, the country is rolling out a tiered pricing system this year and has started by raising water fees for consumers in wealthier cities such as Beijing.
China also wants to protect its total water supply, with a target to cap consumption at 670 billion cubic metres in 2020. ($1 = 6.1965 Chinese yuan) (Reporting By Kathy Chen and Dominique Patton; Editing by Alan Raybould)