China Faces a Water Crisis

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Even though China has hiked average water prices more than tenfold in the past two decades, prices are still far below global market prices and a fraction of levels in the U.S. The global financial crisis has only made price reforms more difficult. "Water prices can be a life-or-death issue for the poor in developing countries," says the World Bank's Saghir. "It's a problem because it is more difficult to implement reform when many cannot afford to pay any higher costs for water."

Lost Opportunity

Roughly 65% of the country's total water usage goes to agriculture, but less than half actually reaches the crops; the rest leaks from pipes, evaporates, or is otherwise lost on the way to the fields, according to World Bank statistics. And of the 25% that goes to China's industry, the majority isn't recycled. That compares to a recycling average of as high as 85% in developing countries. As more Chinese flock to cities, the 10% that goes to homes is likely to rise.

For now, China's government is trying to spend its way out of the dilemma. By September of last year, the country had invested $7.46 billion into 2,712 water treatment projects, according to China's Ministry of Environmental Protection. Beijing has embarked on a massive and controversial multibillion-dollar effort to transport water from southern regions. But the project has been delayed over both environmental concerns and resistance from the estimated 300,000 farmers who would have to be relocated because of a canal and water-pumping and cleaning facilities. High costs limit many technological solutions: Water desalination, for example, is not only expensive but requires a huge amount of energy, another resource in short supply.

At least one multinational company is taking matters into its own hands. Last October, at a conference in Beijing, Wal-Mart Stores (WMT) pledged to cut water use in half at its more than 115 China outlets over the next two years. The Bentonville (Ark.) retailer also said that starting in January 2009 it will audit all of its more than 1,000 mainland suppliers to ensure they reduce their wastewater discharges, too. The company plans to monitor emissions and hazardous waste disposal. "Sustainability in our operations and our supply chain, selling and making products in an efficient, socially, and environmentally responsible way" is Wal-Mart's goal, former CEO and President H. Lee Scott told employees at the conference. "[It] will be essential to meeting the expectations of customers in the future," he added.

For more on water crises globally, please see BusinessWeek.com's slide show.

Roberts is BusinessWeek's Asia News Editor and China bureau chief.