International | Apr 05 2006
Australia is the world’s driest continent, so water conservation is an ever-present fact of life in this country. Most of the population of around 20 million people live close to the coast where water is more plentiful, but still Australians who once took water for granted have come to realise water is a privilege and not a right.
While sensible Aussies are buying rain tanks, putting buckets in showers and converting to grey water recycling, most would be unaware of the situation in China, which boasts 21% of the world’s population but only 6.2% of the world’s freshwater resources. It gets worse in the Northern provinces, which are home to 45% of its population but which enjoy just 19% of the country’s water resources.
The supply of water and particularly water suitable for drinking is therefore becoming a major issue in China. In the view of some experts the issue is fast turning into a crisis for the world’s most populous nation, and one that appears to have no simple solution.
JP Morgan last year released a report by Dr Richard Hardiman of the EU Commission, who has broken down the issue into a simple equation: a thriving economy + industrialisation + water consumption + irrational utilisation + water resource depletion + water pollution = a water crisis.
Breaking down the equation into component parts to gain a clearer perspective, the logical starting point is water consumption. As Dr Hardiman notes, the Chinese have an annual water supply of 550 billion cubic metres, but consumption remains above this figure and results in an average annual deficit of 40 billion cubic metres.
Using northern China as an example, Hardiman notes it contains only 19% of the national annual volume of water resources and 10% of the world’s average per capita water availability. In per person terms the average for China is 2,200 cubic metres annually, but this falls to 1,100 cubic metres in the Northern provinces. With the population of China continuing to increase consumption is expected to continue to rise, so he suggests this figure is likely to fall to a national average of about 1,700 cubic metres per person by 2030.
But it isn’t just that water consumption is increasing, as China’s reserves of water are also declining at a rapid rate. Hardiman notes the water tables, and particularly those in the drier north, are being depleted at a rate of 1-3 metres each year. At the same time the Yellow River is drying out, glaciers are melting and the snow line is rising, further limiting supplies.
While it is possible to partially blame this on climatic changes, it also reflects a poor record of utilisation of water resources. Remaining in the north for the examples it offers Hardiman notes the Gansu province, which is home to 2% of the Chinese population, is experiencing a rapid increase in deserts within its boundaries. Overgrazing and overuse of ground water means its desert regions, which currently stand at about 111,000sq kilometres, are increasing at a rate of 2,000sq kilometres annually.
Inefficiencies in the use of water are obvious in other areas as well, with Christian LeMiere of UK based analysts Jane’s suggesting figures show only 1/4 of the water used for irrigation in China is used effectively, with the rest simply being wasted. Industry is no better he notes, as to produce a tonne of steel in Germany or France less than six tonnes of water is required, but in China the amount of water used is 4-9 times that amount.
Significantly, the problem is not confined to the wasting of existing resources, as a potentially more significant issue for the Chinese is the pollution of water supplies. As Hardiman’s report points out, human, animal and industrial waste are all contributing to pollute the water system to an extent that the outlook becomes even more ominous.
As Hardiman notes, 52 of China’s 135 rivers are heavily polluted, as are 75% of its lakes. These figures are alarming and reflect the fact a large portion of the industrial and municipal waste throughout China is allowed to enter groundwater supplies and rivers untreated. This, he suggests, is the result of water quality supply regulations not being properly policed by regional governments.
Hardiman estimates 30% of China’s total water resource comes from groundwater, but of this only 63% is suitable for drinking without being treated, while a further 17% is safe to drink after it has been treated.
Of the remainder 12% is unsuitable for drinking even after being treated but can be used for agricultural and industrial purposes, while the final 8% is believed to only be suitable for industrial applications even after being treated.
According to World Health Organisation figures, the end result of China’s water problem is as many as 700 million people among its population of 1.3 billion drink water that doesn’t meet minimum health standards, due primarily to improper treatment of waste.
The organisation suggests only about 20% of China’s sewage is in fact adequately treated.
Even the government acknowledges a problem exists, as vice minister of water resources Er Jingping said recently up to 300 million residents drink water that is contaminated by fluorine, arsenic or high levels of salt or other organic and industrial pollutants.
Additionally, in recent years there has been an increase in the number of large chemical spills, further accentuating the problem. This is proving costly not only in terms of water supplies but to regions generally. As Jing Ulrich, JP Morgan’s head of markets in China notes, one successful prosecution for pollution of the Yellow River that covered 400km of the waterway and killed as much as 45,000kg of fish was based on damages estimated at millions of dollars.
Another example is as recent as last November, when an explosion at a PetroChina Co. plant allowed 100 tonnes of toxins to spill into the Songhua River, polluting it and causing water supplies for more than 100 million people to be cut for several days.
With water treatment technologies globally becoming more advanced it would seem fair to assume the government would be more active in pursuing policies increasing the amount of water being treated and recycled. Here again the system breaks down though, as Hardiman notes in Henin province, home to 100m people, there are only four wastewater treatment plants.
According to Ulrich, the wastewater treatment plants operating in China are run very badly, with a survey of 535 plants showing 100 to be defective. Of these, 14 showed serious enough defects to have been blacklisted by the State Environment Protection Administration.
Dr Hardiman estimates as little as 20% of wastewater may actually be treated, meaning the reality will fall well short of the target set by the government for 50% of wastewater in cities to be treated by 2010. One problem is in the legislation, with Hardiman noting municipalities are reimbursed based on the volume of wastewater produced, regardless of whether it has in fact been treated.
This leaves the system open for embezzlement, which is rumoured to be significant, while also working against the construction of additional facilities.
Further complicating the issue in Hardiman’s view is the fact the country’s water resources are managed by a number of different authorities, many of which have conflicting objectives. Further, initiatives are orchestrated by provincial governments that are judged by their economic performance and not on any improvements in terms of environmental stability, providing even less incentive to take tough decisions.
For example, he notes until 2000 the Ministry of Land Resources monitored the groundwater situation before handing control of this over to the Ministry of Water Resources, yet it continues to monitor groundwater in some provinces. The Ministry of Health monitors drinking water, while the Ministry of Construction is responsible for wastewater treatment plants. This lack of a centralised structure for controlling the industry makes conflict all but inevitable, particularly when, as Hardiman points out, the Water and Water Pollution Prevention Laws are in part contradictory.
Given these problems, one would take for granted the government would be doing as much as possible to improve the situation, but Hardiman again suggests this is not the case.
The government’s 10th five-year plan for water was to invest US$11bn in water supply systems and US$15bn in wastewater treatment plants. While these sound like substantial sums, Hardigan points out Germany, with 6% of China’s population, is to spend 50 billion euros on wastewater treatment plants alone over the next 20 years.
Another major initiative the Chinese government has is a plan to spend US$62 billion on a canal system to facilitate the shipping of water from the south where the water supply is more plentiful to the arid northern regions. The project is estimated to be able to move 45 billion cubic litres annually, which is about 25 times the annual water consumption of New York City.
A problem with the project though is there isn’t any immediate benefit to those who need help the most. The first to benefit will be Beijing and other large urban areas, whereas the needy rural provinces are unlikely to see any tangible benefit before 2015. As a result, the north is more likely to face water rationing over the next few years.
Given the north already pays higher water tariffs than the south, this inequality is resulting in some civil unrest. Again, this is a situation likely to worsen rather than improve, this outlook backed up by figures showing the number of disputes has risen from about 140,000 in 1986 to about 450,000 in 2004.
Morgan Stanley’s Andy Xie suggests the water issue highlights the growing rural-urban gap. As Hardiman notes, the water available for agriculture will decrease to 50% of supply by 2050 from 79.5% now, while industrial’s share will increase to 41% from 16% now and domestic to 8.8% from 4.6% now.
Chris Leung of DBS in Hong Kong agrees with Xie, suggesting the lack of basic resources will undermine the government’s goal of extending economic growth to the rural majority. Ministry of Water figures support this view as they show factories and urban residents used 34% of the nation’s water in 2004 compared to 25% in 1998. As a result, grain production in China has fallen by 8.4% to 469.4 million tonnes over the same period according to National Bureau of Statistics figures.
The problems may not be limited to China however, as Dr Hardiman notes much of mainland Asia’s water originates in China, so unless the situation is resolved there could be an impact on the water security of nations surrounding China. As he put it, when China gets thirsty the rest of Asia gets thirsty.
So what is the solution? In Dr Hardiman’s view the privatisation process has not gone far enough, as while Chinese firms are entering the market few foreign players are, while those that have tried have met with limited success. He suggests in part this reflects the problems arising from the lack of a clear legal framework, as foreign players in particular are less willing to make large-scale investments in markets when they don’t know exactly what conditions they and their competitors will be operating under. Hardiman suggests such a legal framework is unlikely to be in place in the near-term.
The other issue limiting foreign involvement is infrastructure, as foreign players are unlikely to attempt to build their own pipe infrastructure given the costs involved. This means the government must finance the upkeep of the pipe system, part of which dates back as much as 120 years and is in poor repair. Leakages through the pipe system Hardiman estimates are as high as 30-40%, which potentially gives rise to legal problems and compensation claims for damages caused by any leaks.
This is where foreign investment could make a difference in Hardiman’s view, as Western technology has a proven advantage over China’s domestic technology.
Again the legal framework is proving an impediment though, as foreign ownership of public utilities is limited to 49.9%. As a result, the big players who have the technological expertise to make a difference have less flexibility in the market and so are less attracted to the Chinese market.
Hardiman’s conclusion is China indeed faces a water crisis, with serious concerns as to whether it can correct its situation in time. While the situation could be improved by adopting western technologies and accepting that a Western approach to water usage will not work in its situation. For this to become viable though requires a more acceptable and suitable legal framework, but until this is established Dr Hardiman expects the crisis will worsen rather than improve.
