China’s acute water shortage imperils economic future

The bestiary beloved of China commentators and economists needs an addition to its black swans, grey rhinos, white elephants and the ‘tigers and flies’ targeted in the corruption war. Welcome to the Camel Economy, one that must adjust very rapidly to water scarcity. A crisis looms, with potentially far more serious economic, social and political consequences than demographics, debt and deleveraging.

So why is water scarcity not a central feature of studies of China’s economic outlook? Why is it not recognised as a constraint on economic growth and thereby China’s power? After all, in 2005 the Minister of Water Resources declared a need “to fight for every drop of water or die, that is the challenge facing China”, while former premier Wen Jiabao said that water shortages threatened “the very survival of the Chinese nation”.

Is it really that bad? Unfortunately, it is. Accepted definitions of water stress, scarcity and acute scarcity are resources of 1,700 cubic meters, 1,000 cubic meters and 500 cubic meters per person per year, covering everything from nuclear power stations to teeth cleaning. China’s overall resources are roughly 2,000 cubic meters, but 80 per cent of water resources are in the south. In the north, eight provinces suffer from acute water scarcity, a further four from scarcity. They account for 38 per cent of China’ agriculture, 50 per cent of its power generation, 46 per cent of its industry and 41 per cent of its population.

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Here are a few more scary statistics for economists to consider. The water resources of the 112m population of the Beijing/Tianjin/Hebei region, equate to half of acute scarcity. In the past 25 years, 28,000 rivers have disappeared. Groundwater has fallen by up to 1-3 metres a year. One consequence: parts of Beijing are subsiding by 11cm a year. The flow of the Yellow River, water supply to millions, is a tenth of what it was in the 1940s; it often fails to reach the sea. Pollution further curtails supply: in 2017 8.8 per cent of water was unfit even for agricultural or industrial use.

The consequences of scarcity are all too human. In Lintao city residents in high rise buildings must carry water up to their apartments. In Taiyuan, capital of Shanxi province (population 35m), the 2,500-year-old famed vinegar industry is under threat, while at the main international hotel last year guests were advised that water for washing was available for one hour a day. Zhengzhou’s projected population increase of 3m-4m by 2020 may be unrealisable: there is water for only one of seven new purifying plants.

The political challenge is immense: China’s Five Year Plan implies halving per capita water consumption while doubling China’s 2010 GDP.

“Don’t worry,’ say economists, “China has the South North Water Transfer Project (SNWTP). They can shift water. Or desalinate it.” Alas, not in sufficient quantities. Even if all the water of the SNWTP went to the Beijing/Tianjin/Hebei region, it would still leave its population suffering acute water scarcity. But it must also supply three other provinces. Transfers from Tibet or Russia are fantasy. Desalination is dotty: it is very power-consuming and power generation (still largely coal) consumes much water.

The Chinese government is moving too slowly towards the Camel Economy. It has plans, incentives for officials; it invests in recycling, irrigation, pollution, drought resistant crops; it leads the world in high voltage transmission (to get hydro, wind and solar energy from the west of China). None of this is sufficient or likely to be in time. The most effective measures are the most difficult politically: raising the price of water from around a quarter of the world’s average, ensuring better governance (too many ministries are involved in decisions, vested interests interfere), abandoning a policy of self-sufficiency in food, moving away from power consuming industries (steel and aluminium). It is easier to kick the watering can down the road.

Yet a Camel Economy is what China has said it wants: high tech manufacturing, service based, rebalanced towards consumption (current water pricing/subsidies favour industry over consumers), an efficient agriculture sector (highly important, since agriculture currently uses 62 per cent of water resources).

There are global implications: price increases for agricultural products; investment or co-operation with companies that develop water saving technology; wider science and technology co-operation; relocation of water consuming industries outside China. Less positively, failure to achieve a Camel Economy would greatly affect world trade, investment and employment; in the worst case, legal and illegal migration levels could rise, as would tensions over transboundary water.

Perhaps the biggest implication is for China’s global ambitions, which require a powerful and sustainable economy. Economists might want to ask themselves whether water scarcity will put paid to those ambitions. You can print money, but you can’t print water.

Charles Parton is Associate fellow of RUSI, trustee of the environmental NGO China Dialogue, and London Director of the Beijing-based research and analysis company China Policy.