Global Economics

China Faces a Water Crisis


After decades of massive economic growth and the migration of villagers to cities, the scarcity of water in China is more dire than ever

Over the past year getting clean water has been a struggle for many in China. In February one of the most severe droughts to hit China in a half-century affected some 5 million people and 2.5 million livestock in the provinces of Hebei and Henan, near Beijing. Farther south in Yancheng, Jiangsu, 300 kilometers from Shanghai, more than 200,000 people were cut off from clean water for three days when a chemical factory dumped carbolic acid into a river. Just before the Olympics last June, the coastal city of Qingdao, site of the sailing events, saw an explosion of algae in nearby waters that may have been caused by pollution.

These are hardly unusual in China. The country that has a long history of devastating floods and droughts arguably faces an even bigger water crisis today. After almost 30 years of double-digit economic growth and the migration of hundreds of millions of villagers to the cities, China has been barely able to meet the spike in demand for water. Its resources were scarce to begin with and pollution has made clean water even scarcer. Another unknown: the effect of climate change. "Based on our country's basic water situation, [we] must implement the strictest water resource management," said Vice-Premier Hui Liangyu at a national water conference in Beijing in January.

The scale of the challenge is enormous. Every year, on average 15.3 million hectares of farmland—13% of the total—faces drought. Today some 300 million people living in rural areas, or nearly a quarter of China's population of 1.3 billion, don't have access to safe drinking water. And among more than 600 Chinese cities, 400 are facing water shortages, including 100 that may see serious shortages, says Ma Jun, director of the Beijing-based Institute of Public & Environmental Affairs and author of China's Water Crisis. The country would need another 40 billion cubic meters of water a year—about a tenth of the volume of Lake Erie in the U.S.—to meet the needs of all of its city dwellers fully. "China is facing a dire situation in its water supply," says Ma.

Years of Damage

One of China's biggest problems: wastewater. Factories and cities have discharged mostly untreated sewage and pollutants into the country's rivers and lakes—some 53.7 billion tons in 2006 alone, according to the World Bank. China's environmental regulators have designated 48 of China's major lakes as seriously polluted. One-fourth of the water sampled along China's two largest rivers—the Yangtze and Yellow—was found to be too polluted even for farm irrigation. And tap water isn't entirely safe, either, with Chinese authorities responding to 48 large-scale environmental emergencies last year. "Extensive water pollution of course impacts on water scarcity. This is especially [true] in China," says Washington-based Jamal Saghir, director of the Energy, Transport & Water Unit of the World Bank.

China's huge population is a strain, too. The country's water resources are only about 25% of the average per capita for countries around the world. That problem is compounded by a huge regional disparity. Southern China has a relative abundance of water, getting more than 2,000 millimeters (79 inches) a year of rainfall. In the north—where 17 million people live in Beijing and 12 million live in Tianjin—the average annual rainfall is just 200mm to 400mm (7.9 in. to 15.8 in.) a year. "Availability of water drops to a very low level on the north China plain, even below that of Israel," says Ma. And this region is home to "China's political and cultural capital, major manufacturing, and one of China's bread baskets," he adds.

China has worsened its own problems by offering large subsidies for water to keep prices low. That practice has led to plenty of waste, experts say. 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.


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