WATER P-NOTES 48725 ISSUE 37 MAY 2009 Addressing China's Water Scarcity F or years, water shortages, water pollution, and the excessive incidence of diarrhea and cancer in flooding have constrained growth and affected rural China has been estimated, based on 2003 public health and welfare in many parts of China. data, at 66.2 billion yuan, or 0.49 percent of GDP. Northern China is already a water-scarce region, and the country as a whole will soon join the group of water-stressed countries. The combined impact Challenges for China's Water of increasing demand, available supplies, and dete- Resource Management riorating water quality caused by pollution suggests that a severe water crisis is emerging. China's water resources are scarce and unevenly China's leadership is aware of the worsening distributed. It has the sixth largest amount of renew- water situation, and is committed to transforming able resources in the world, but a per capita avail- China into a water-saving society. The 11th Five- ability that is only one-fourth the world average and Year Plan (2006­10) sets a number of policy goals among the lowest for a major country. The country and priorities for water resource management, such is under serious water stress, and its problems are as adopting a more unified and better coordinated made more severe by the fact that resources are management system, shifting from supply-side to unevenly distributed, both spatially and temporally. demand-side management, integrating river basin Per capita water availability in northern China is management with regional management, and less than one-fourth that in southern China, one- establishing a system of water rights trading. eleventh of the world average, and less than the threshold level that defines water scarcity. A mon- To date, however, the scarcity of water re- soonal climate also means that China is subject to sources has not been effectively managed. Many frequent droughts and floods, often simultaneously national and local water resource management and in different regions, as precipitation varies greatly pollution control plans have not been fully imple- from year to year and season to season. In the Hai mented and many investment targets have not been and Huai basins, for example, river flows fall to 70 achieved. Water pollution poses a serious threat to percent of their averages one year in four; dry years public health and causes major economic and tend to come in succession, accentuating the prob- environmental losses, estimated by the Chinese lem. government at the amount equivalent to about 1.7 percent of GDP or more in 2004. China's water productivity is low compared to middle and high-income countries, largely due to The most important costs relate to the health differences in the sectoral structure and efficiency risks associated with polluted drinking water sources. of water consumption. Productivity in agriculture, Over 300 million people living in rural China have which accounts for 65 percent of water usage, is no access to safe drinking water. The economic cost the lowest of all sectors, primarily because of waste- of disease and premature deaths associated with ful irrigation systems (more than half the water This note highlights important information from Addressing China's Water Scarcity: Recommendations for Selected Water Resource Management Issues, by Jian Xie, a 2009 World Bank/East Asia and Pacific Region report. Readers may download the complete document from www.worldbank.org/water. WATER P-NOTES withdrawn never reaches crops) and suboptimal households, industry, and agriculture, with the allocation among crops. An inefficient allocation attendant damage and public health costs. system treats the use of water in paddy fields the same as in vegetable fields, though the latter are Finally, it is clear that current growth trends twelve times as profitable per unit of water. Industry are unsustainable unless they are accompanied accounts for 24 percent of water usage, and its by improvements to existing infrastructure and recycling level is half that of developed countries. fundamental reform of the country's water resources The magnitude of these differences is indicative of a management. Over the past three decades, the lack of market consciousness. economy has grown at an average of more than nine percent a year. The percentage of the popula- Over the years water pollution has increased, tion living in urban centers has gone from less than spreading from the coast to inland areas and from twenty percent to almost fifty percent; in another the surface to underground resources. Domestic decade, well over half the population will live in discharges have become the largest pollution cities, further stressing municipal water systems that source, which is significant since slightly more cannot adequately treat wastewater. The popula- than half of municipal sewage is treated, whereas tion is expected to continue to grow, reaching 1.5 almost all industrial wastewater is treated. Pollution billion sometime around 2030. These three trends incidents overwhelm the fragile water environment, pose serious challenges for improving China's water contaminate downstream drinking water for millions resources management. of people, and threaten public health and the quality of life. Water quality of most of China's water bodies has been degraded, with over one A Plan of Action for quarter deemed unsafe for any use and only one Addressing Scarcity third considered safe for industrial and irrigation applications (see Figure 1). Of 27 major monitored The factors underlying the emerging water crisis lakes and reservoirs, only 29 percent met standards point to the need for China to reform and strength- safe for human consumption after treatment. en its water resource management framework. Pollution exacerbates scarcity when polluted The focus of reform needs to be on improving the water cannot be used, resulting in unmet demand efficiency and effectiveness of water management and groundwater depletion. Water that does not institutions, using market-based instruments as meet quality standards is nevertheless supplied to much as possible, and clarifying the roles, respon- sibilities, and relationships of government, markets, and society. The complexity of water resource management Figure 1. Percentage of Sections with in China requires a transition from a traditional Water Quality Grade IV to Grade system with the government as the main decision- V+, 2001 and 2002 making entity toward a modern approach that relies on a sound legal framework, effective institutional 100 90 arrangements, transparent decision making and 80 information disclosure, and active public participa- 70 60 tion. This will require that laws are straightforward 50 and not contradictory, with mechanisms and proce- ercentP 40 dures for enforcing them. It also should entail the 30 20 creation of a new multi-sectoral state agency tasked 10 with overseeing water management policy at the 0 Pearl Yangtze Song- Huai Hai Yellow Liao national level. River River huajiang River River River River River Another priority is the development of a coherent 2001 2005 water rights system, using water resource allocation Source: China Environmental Status Bulletins (2001­05). plans as the basis for assigning rights and making Note: Grades I­III refer to water that is safe for human consumption after treatment; grades IV­V refer to water that is safe for industrial and irrigation sure rights are assigned in an ecologically sustain- use; and grade V+ refers to water that is unsafe for any use. able manner. Wherever possible, water rights ought 2 ISSUE 37 · MAY 2009 to be based on the rate of evapotranspiration, been inadequate investment in pollution control, which spotlights consumption and encourages more and much wastewater still goes untreated. Many efficient use of water, the adoption of water-saving pollution prevention and control plans have failed technologies, and increased return flows to the to achieve their objectives, and institutional and environment. policy shortcomings have led to insufficient prioritiz- Water pricing can be an effective means of ing of pollution control measures and enforcement reducing water usage and increasing efficiency. of environmental regulations. Efforts must be made China has moved to raise the rates charged for to improve pollution control planning, unify and water services, but they have yet to reach the point strengthen pollution control monitoring, strengthen at which providers can recover costs, and prices the wastewater discharge permit system, increase the do not reflect environmental damage or depletion reliance on market-based instruments that reflect costs. The inevitable result has been that water the true costs of pollution, control rural pollution service providers have failed to adequately maintain that impacts users downstream, and use the existing their infrastructure, expand service to outlying and litigation system to hold polluters accountable for poorer areas, and operate in a manner that meets despoiling public goods. environmental standards. Prices that reflect the full A final task is to improve China's emergency scarcity cost of water would create an incentive for response to pollution disasters and to increase the using more efficient technologies to reduce waste chances that such catastrophes can be avoided in the and overall consumption. first place. The high frequency of serious pollution Social protection measures will be necessary incidents and the costs associated with them suggest as the price of water rises to reflect its full scarcity the need for reforming and strengthening existing value. Subsidizing the price actually does little to institutions for emergency prevention and response. help the poor, as most of the benefits from the arti- These reforms should include shifting the emphasis ficially low price accrue to better-off consumers and from mitigation to prevention, enhancing disaster industry while discouraging efficient water use in the preparedness, establishing a disaster relief fund process. Instead, water must be priced at a level paid for by polluters, and increasing monitoring to that fully reflects its relative scarcity in China, with detect emerging problems before they worsen. programs that utilize vouchers or direct transfers to ensure that the country's poor have access to the water resources they need. Further Issues for China's Future Coping with scarcity requires protecting sources of water, especially the ecosystems in the upper The variations in the economic value of water by reaches of river basins such as forests, wetlands, sector and by region, low economic efficiency of and agricultural lands. Central and local govern- agricultural water use, and poor cost-effectiveness ments are increasingly using ecological compensa- of underground water withdrawal in North China tion mechanisms (ECMs), which are government all can be helped by increasing efficiency and transfers from public funds to protect ecosystems. reducing demand. The issue is how to improve These transfers, however, do not provide a direct the efficiency of water use while reducing rural link between ecosystem service providers and ben- poverty and securing the nation's food supply at eficiaries. A payment for ecosystem services (PES) the same time. system addresses this weakness by creating a mar- Global warming caused by human activities is ket for environmental services in which money is one of the biggest threats to the natural environment reallocated from the beneficiaries of environmental and human well-being. Climate change will have a services (consumers) to those providing the services negative impact on the scarcity and vulnerability of (such as watershed land managers). A PES system China's water system, and remedial measures must offers a more market-oriented and self-financing be taken to adapt to and ameliorate these effects. alternative to the government-funded ECMs cur- rently in use. The effective application of water management measures--such as pricing, allocation and water Pollution reduction and elimination is an impor- rights administration, ecological compensation, and tant part of the solution to water scarcity. There has water quality management--is dependent upon an 3 WATER P-NOTES analysis and understanding of the ecosystems and the economic value of competing water uses. In Table 1. Planned Water-Related many cases, the important analytical work remains Investment Shares between the to be done. Developing a sophisticated analytical Central Government and Local system using advanced economic, geographic, and Sources in Wei River Basin ecological tools is required for sound policy making (see Table 1 for a sense of the many elements Ratio of Central involved in planning and spending). Government to Local Spending Items Investment There is no doubt that China faces a major challenge in managing its scarce water resources Water Saving 2:01 to sustain economic growth in the years ahead. Water Pollution Control 1:04 Past experience in China and in other countries Water Use 2:01 provides some lessons for the way ahead. The Flood Control 8:02 country is unique in many ways and will have to adapt techniques and policies developed elsewhere Water and Soil Conservation 7:03 to suit its own circumstances. There are grounds Ecosystem and Dry Farming 1:01 for optimism, given China's immense innovative Total Investment (billion yuan) 22.6 capacity in its program of economic reform. It can Share of central/ 62.4%/ and should take another bold move in reforming local government (%) 37.6% the institutional and policy framework to make it a world leader in water resource management. Source: The Integrated Control Plan of Wel River Basin in Shaanxl Province (Working Group of Weihe River Basin Comprehensive Control Plan 2002). The Water Sector Board Practitioner Notes (P-Notes) series is published by the Water Sector Board of the Sustainable Development Network of the World Bank Group. P-Notes are available online at www.worldbank.org/water. P-Notes are a synopsis of larger World Bank documents in the water sector. 4 THE WORLD BANK | 1818 H Street, NW | Washington, DC 20433 www.worldbank.org/water | whelpdesk@worldbank.org