The growing water crisis in China

The growing water crisis in China

China is plagued by a growing water security crisis and its current solutions are far from sufficient. The reverberations of this crisis have already had global implications, even contributing to the Arab Spring. Further, as the crisis worsens, national, regional, and global political and economic instability will grow.

China’s agricultural core is in the North, but its water resources are in the South. As of 2014, Northern China holds two thirds of Chinese agriculture but only one fifth of its water.  An interventionist political ideology has cemented this chronic structural issue in the Chinese economy.   

The crisis grows

China has 20% of the world’s population but only 7% of its fresh water and a rapidly growing middle class with water-demanding lifestyles. In 2014, eleven out of thirty-one Chinese provinces did not meet the World Bank’s water needs criteria of 1500m3 per person. In 2015 in Beijing, water provisions amounted to only 100m3.  Agriculture and industry account for 85% of water usage.

China’s artificially low pricing of water has encouraged poor water management by creating a disjuncture between actual and market water prices, promoting highly inefficient use in industry and agriculture, and persistent pollution of scarce freshwater supplies. A 2009 World Bank report stated that China was using ten times more water per unit of production than the average industrialised country, and that pollution has made the water in 19% of main rivers and 35% of reservoirs useless for agriculture and industry.

Climate change exacerbates this situation. The melt-water from the Qinghai-Tibetan Plateau significantly feeds the Yangtze and Yellow Rivers; the Yangtze alone supports 584 million people and serves an economic zone that constitutes 42% of GDP. According to The State Laboratory of Cryospheric Sciences in China, run off into the Yangtze decreased by 13.9% during the 1990s.

Problem solved?

China’s principal solution has been to commission the very high profile South-North Water Diversion Project, inspired by Chairman Mao. In 1952, Mao stated, “[The country’s] South has lots of water, the North has less, if it were possible, it could borrow a little”.  The core of the project is a 1200 km canal stretching from the Yangtze to Beijing.  It is a political showcase that is temporarily averting crisis by addressing the symptoms rather than the cause, but at a cost of $62 billion, it is an expensive breather that will not resolve the problem.

By facilitating massive water transportation, China is reinforcing an artificial economy. It is encouraging water-intensive industry and agriculture, and promoting a downward spiral of strengthening an insatiable demand whilst failing to combat system inefficiencies.  Long term, this project, combined with state-induced low water prices, climate change, and population and economic growth, will perpetuate economic and water scarcity in Northern China.

China has made strides to find innovative solutions to its water issues. Since April 2015, it has experimented with pioneering urban designs to solve flooding and water shortages, launching a ‘sponge city’ program in 16 cities and districts to retain rain water. The Water Pollution Prevention and Control Action Plan, announced in 2015, set targets to improve specific polluting industries and has had some success; 50,000 offending companies have shut down or halted operations.  Nonetheless, critics have questioned the effectiveness of enforcement. Ma Jun, Director of the Institute of Public and Environmental Affairs, said many factories did not comply and local governments carried out the easier aspects of the legislation rather than tackling larger, more complex problems.  However, these are small solutions to a very major problem.  Experts predict that, if China carries on with business as usual, water supply will outstrip demand by 2030.

Impact on China’s global competitiveness

Water security issues will have a severe impact on domestic economic stability in the long term. In China, 45% of GDP is in regions that have a similar water resource per capita as the Middle East. China’s electricity generation is reliant on water, as it is estimated that 45% of fresh-water reliant power generation facilities are in water-stressed provinces.  Further, many water-intensive industries, such as fibres and metals, generate 51% of their output in water scarce regions.

China’s global competitiveness will likely be affected as industry, agriculture, and municipal use compete internally and with each other.  Businesses should contemplate a future of water price hikes, supply disruptions, pollution, and increased regulation, and seek the opportunities presented by innovative business solutions to solve Chinese water-security issues.

Global instability

Any water-induced economic instability will have significant political implications, nationally, regionally, and, given China’s significance, globally. In fact, it has already happened. The 2011 winter-drought in China’s Eastern wheat-growing province forced China to purchase vast volumes of wheat on international markets.

This caused a doubling of global wheat prices. Soon, a hungry Middle East and North Africa were convulsing in the Arab Spring; in Tunisia, Yemen, and Jordan, protesters waved baguettes in protest, while in Egypt, people were crying out for “bread, freedom, and social justice” (it rhymes in Arabic).

As China moves rapidly away from staple food self-sufficiency, the globalisation of China’s water-security crisis is a serious issue. Such a danger has not gone unnoticed; a report by the USA’s National Intelligence Council registered Chinese water and food shortages, predicted to occur by 2030, as a threat. The implications for the global economy if China’s economy stutters, given it is predicted to account for 17.2% of it by 2025, are self-evident.

As politicians, leaders, investors, and businesses, but ultimately as people, China will wrestle with this challenge, but the world must also take heed of China’s water security. The dry throat of the Chinese dragon may induce more than just a sneeze.

About Author

Ben Abbs

Ben Abbs works for Bacchus Capital Advisers, a specialist investment and merchant bank focused on natural resources. Bacchus Capital has particular expertise in uranium and the nuclear sector, including the creation and listing of Yellow Cake, a unique uranium vehicle, on the London Stock Exchange in 2018. Prior to joining Bacchus Capital, Ben worked in several roles across the UK Government, including economic crisis management in COBR at the Cabinet Office, economic intervention at UK Government Investments, and investment and trade policy as Private Secretary to the Director-General for Investment at the Department of International Trade. He has also worked for the European Centre for Energy and Resource Security and written for several political media organisations.