China: How Dehydration May Stifle Growth

A significant number of people in the world think of China as the next leading superpower. This isn’t surprising as China boasts the second largest economy, continues to see some of the highest GDP growth rates in the world, and has more than doubled their military spending between 2005 and 2011. Despite China’s accumulation of power, they still face an issue most people in the Western world would barely even think about, access to clean water. China holds 7% of the world’s fresh water, but also 20% of the global population. Pollution, inefficiency, outdated delivery systems, and logistical problems all contribute to a growing concern that water scarcity will hit China hard in the near future.

Water Pollution in China
Water Pollution in China

As China continues its rapid development, rampant pollution threatens to further deplete an already scarce resource. Thousands of industrial plants have popped up along the river banks all over China, dumping sewage and chemicals into water previously used by local populations resulting in up to 60,000 deaths per year. A 2012 report produced by the Chinese water authority indicated that “Up to 40 percent of China’s rivers were seriously polluted last year.” Three of China’s largest lakes (Tai Hu, Dian Hu, Chao Hu) are so polluted they are considered unfit for human contact. The laws fail to provide any short term economic incentive to treat water prior to discharge as the cost would be far greater than the fine imposed for environmental violations.

In addition to the extensive pollution of water by industries, there exists a regional disparity in water availability, especially when compared against population concentrations. Northern China only holds 23% of total water resources while supporting 40% of the total population as well as 64% of China’s arable land. 8 out of the 11 “dry” provinces, indicating water poverty at a per capita water consumption under 1,000m³, are located in the north as well as all 6 “deficit” provinces, which consume more water than they actually have. 4 out of these 6 provinces are home to China’s most populated cities including Shanghai and Beijing. In an attempt to bring water from the south to the north the Chinese Government has begun one of the largest engineering projects ever conceived. The South-North Water Diversion Project will link the Yellow and Yangzi rivers via thee new channels at a cost of almost $80 billion. While this would be an amazing feat of modern engineering, the environmental cost could be devastating. Major dam projects proposed on the Mekong and Brahmaputra rivers could also lead to sour relations and pollution issues with their downstream neighbors.

“…in 2012 that the project so far has reduced the quantity of plankton in the Yangzi by over two-thirds and the number of benthic organisms (those living on the river bottom) by half.”

China does not necessarily need to go to such lengths to increase the supply of water, but rather reduce the demand. Currently, China’s water productivity is significantly lower than other competitive economies in Europe. The Economist writes, “For each cubic metre of water used, China gets $8-worth of output. The average for European countries is $58 per cubic metre. Of course, these countries are richer—but they are not seven times richer.” The price of water in China is extremely undervalued despite its obvious scarcity, causing it to be used carelessly by businesses and people alike. The low cost of water renders various forms of treatment, desalination, and recycling economically nonviable. Industries in China only recycle about 40% of their water while dumping the rest in various rivers and lakes. The Government is attempting to implement a complex pricing scheme to punish over use while retaining lower prices for rural farmers and areas with higher water efficiency. While solutions around efficiency seem cheaper and more effective, there are evident problems that may arise. Increases in the cost of water can affect poorer people who are already struggling to pay, or cut into the livelihood of rural farming areas in the north. An increase in the price of water can reduce the productivity of various industries that use it for cooling machinery or cleaning products. The largest industrial user of water is the energy sector where roughly 97% of China’s energy supply is dependent on water. Increases in price or water scarcity can have huge effects on the sectors production capacity and price.

Water Deficits by Province
Water Deficits by Province

Water scarcity in China is a complex issue that can’t be fixed with giant engineering programs alone. Time is running out as over half of China’s larger rivers have disappeared in the last 60 years. Hopefully additional support to environmental regulation agencies and stricter penalties for violations will push industries to recycle and treat more of their water supply. In addition advancements in agriculture practices in rural areas may help lower the amount water necessary for use. China could also be more wary of building huge cities in regions without easy access to water saving time and money on large diversion projects. Ideally, focusing on issues of efficiency and conservation may be best suited to address China’s water crisis and ensure their continued economic expansion.

One thought on “China: How Dehydration May Stifle Growth

  1. Jeff November 8, 2013 / 12:34 pm

    really interesting points throughout this blog, tony.

    the tax plan sounds like it has a lot of potential bringing water demand in China down to a more socially optimal level. a tax that increases in water consumption has an interesting property: firms with more inelastic demand for water face disproportionately high taxes compared to firms with more elastic demand. the tax might yield some interesting sectoral changes. Those firms with the most inelastic demand for water (i.e. those with methods that are hardest to substitute water for) will face the highest taxes, leading them to change their methods, or else shut down, succeeded by companies with cleaner processes. Either way, companies become less reliant on water (demand for water becomes more elastic).

    but imagine the local tax authority trying to impose a tax on water use on farmers and industrial companies. sounds very difficult in practice. hopefully china’s crackdown on corruption will aid in this.

    And that tax only has the effect of reducing water consumption, but doesn’t directly reduce water pollution. could china adopt policies similar to those of the US in the 90’s that regulated firms’ emissions into the air? it might be effective to tax water pollution emissions in addition to water consumption–though, in practice, it might be more challenging to test the quality of water coming out of a plant compared to just the amount of water used by the plant.

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