Polic y Brief A New Era of Water Governance in China Watershed POLICY BRIEF 1 From the perspective of sustainable development, China to water management is needed. This report presents a stands at a crossroads. China’s transition to slower but forward looking strategy for a new era of water gover- structurally rebalanced growth continues. Gross Domes- nance in China. tic Product (GDP) expanded by 6.9 percent in 2017 and the service sector has replaced manufacturing as the China’s Water Resources Challenge economy’s primary driver of growth. China also contin- China has made significant and high-impact investments ues to make remarkable progress in poverty reduction. in water management and infrastructure. Over the past The poverty headcount of US$1.90 per day (purchasing over 60 years, China has developed an impressive foun- power parity) was estimated to have been as low as 0.7 dational level of infrastructure to better manage its water percent in 2015. China’s overarching challenge now is to resources. A total of 413,679 kilometers of river dikes implement the necessary reforms to ensure a successful and 98,002 reservoirs, accounting for more than 800 economic transition toward higher value-added industries. billion cubic meters in storage, have been constructed; While significant progress has already been achieved flood control structures have been built in all major river in some areas, deeper reforms are needed to increase basins; 5,887 rural water supply projects provide services the role of markets, the private sector, competition, and to 812 million people; hydropower capacity now stands domestic consumption for driving productivity-led and at 341,000 megawatts. The significant public investment greener growth in the future. help China reach the achievement of supporting 22 Good water management is essential to achieving these percent of the world’s population with only 9 percent of high-level development objectives. Water scarcity, pollu- the world’s cultivated land and 6 percent of the world’s tion, and flooding threaten China’s continued sustainable water resources. This has been made possible through development. Despite being the world’s second-largest significant public investment, with the government hav- economy and most populous country, China possesses ing allocated RMB 717.6 billion (roughly US$ 104 billion only 6 percent of the world’s freshwater resources. Water equivalent) in 2017 alone for investments in the water use efficiency is relatively low and measures of industrial sector. Despite these significant achievements, China is added value and irrigation efficiency are both lower than still facing acute challenges with respect to both water global averages. In some areas the development of water quantity and quality. resources exceed the renewable capacity and several Water use remains unsustainable and inefficient even as large cities face severe water shortages. Water pollution demand grows rapidly. China’s per capita endowment of meanwhile imposes serious economic, ecological, and water resources is only one-fourth of the global average. health-related costs. About 67 percent of monitored While industrial and agricultural water abstractions have groundwater sites are polluted and 32 percent of major remained relatively constant in recent years, domestic rivers fail to meet basic quality standards required for water use continues to increase, driven primarily by sources of drinking water supply. While China has made population growth and rapid urbanization. These rap- significant progress over the last 40 years in improving idly growing demands come at a significant cost, with access to water supply and sanitation, there are a number increasing competition between the various sectors. The of challenges in closing the service gaps for the last seg- control on total utilization introduced under the Three Red ments of the population, with roughly 70 million people Lines is intended to limit increases in future demand but estimated to be without access to an improved source of will require innovations and improvements in efficiency drinking water on their premises. According to the data to maintain levels of productivity. Moreover, China’s low from the Ministry of Water Resources, only 76 percent of water use efficiency rates mean that many water uses the rural area have access to tap water in 2015 while JMP are highly wasteful. China’s water consumption per RMB data suggest 64 percent of rural areas have access to use 10,000 (roughly US$1,450) industrial added value is two of an improved sanitation facility. To effectively address to three times greater than the average upper-middle-in- these complex water challenges, improved approaches come country (UMIC). The effective utilization factor of 2 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA POLICY BRIEF irrigation water is 0.52, much lower than the 0.7 to 0.8 ecological integrity. Coastal wetland areas have also average among UMICs. been significantly reduced. The biodiversity in offshore coastal areas has decreased precipitously and offshore Improving water quality remains a serious issue that fisheries have been considerably impacted. The stock of requires long-term investment. Industrial, agricultural, unmodified natural coastline now accounts for less than and organic pollutant discharges pose significant risks to 35 percent of the total. The area affected by soil and human health. In 2015, the nationwide chemical oxygen water erosion has moreover reached 2.95 million square demand – depleting pollution discharge volume reached kilometers, accounting for 31.1 percent of China’s total 22 million tons, and NH3-N (ammonia) discharge volume land area. was 2.3 million tons, greatly exceeding natural absorption capacity. In 2017, the water quality of 32.1 percent of Drought and local water scarcity plague large parts of monitored sections in major waterways were lower than the countr. China’s water resources are unevenly distrib- Class IV, 8.3 percent of tested water received the lowest uted across place and time, with the south and southwest rating for water quality based on China’s five-tiered rating featuring the most abundant reserves of water. Rainfall system and 31 percent of monitored lakes and reservoirs is also highly variable in many regions. Water shortages were subject to eutrophication. Among 5,100 monitored are especially acute in China’s energy-producing regions, underground water sources, 66.6 percent were rated as where the high water requirements of coal and gas poor or very poor. Six of nine major bays or coastal inlets extraction and production risk exceeding local water sup- likewise have poor or very poor water quality. Going plies. Producing a single ton of coal for example requires forward, both water consumption and sewage discharge 5 to 6 cubic meters of water, while it is estimated that volume will keep growing. Agricultural pollutants and nearly 10 cubic meters are required for a ton of oil. Spe- non-conventional water pollutants will accordingly con- cific regulations of water consumption within the energy tinue to grow rapidly in the absence of sustained inter- and chemical production sectors under the Three Red ventions. The control of water pollution is also becoming Lines are improving efficiency and reducing withdrawals more complex and without major policy interventions, within projected limits. Though it is well understood that water pollution will impose significant economic as well water scarcity is an issue for the northern and northwest- as health-related burdens. While these were estimated at ern parts of the country, the eastern and southern central 2.3 percent of GDP in 2007, the Government has intro- parts of the country also face potential water constraints duced a series of stringent measures in recent years to with growth in demand anticipated to rapidly surpass control water pollution and improve water quality. supply due to urbanization and industrial growth. Ecosystem services are under severe pressure from Gaps remain in water supply, sanitation, and flood pro- urbanization and growing water use. Too often, urban- tection. China’s small and medium sized cities and rural ization has come at the expense of natural habitats, and areas remain unevenly served by water supply, sanita- has severely damaged ecosystems. Natural ecological tion, and flood protection infrastructure. China has made systems such as wetlands, coastlines, lakes, and river- significant progress over the last 40 years in improving banks keep decreasing in size, reducing the ability of access to water supply, with most of the population es- many waterways to provide ecosystem services like timated to have access to an improved source of drink- flood protection and water retention. For example, major ing water on their premises. However, while most rural wetland areas in the Hai River Basin are estimated to households have some form of on-site sanitation, the have decreased by approximately 83 percent, while the wastewater management, water supply and sanitation number of lakes in the middle and lower reaches with services often lag behind those in urban areas. Quality hydraulic connections to the Yangtze River have reduced is also a concern, with about 9.5 percent of the monitor- from over 100 to only two, namely the Dongting and ing points for the centralized drinking water sources in Poyang lakes. Continued reduction of wetland areas and prefecture-level cities and above recording values below reduced hydrological connectivity continues to under the national quality standard in 2017. In addition, some POLICY BRIEF 3 small and medium sized cities rely on a single source of implemented a series of reforms and pilots designed to water, making them vulnerable to pollution and under- address the many water-related challenges, including wa- mining the security of supply. Securing supplies for the ter scarcity, water pollution, ecological degradation, and large mega-cities and keeping up with increasing de- the increased risks and impacts of floods and droughts. mands also remains a challenge. Surveys carried out by In 2012, the State Council issued formal guidance on the Ministry of Water Resources also show that there are Applying the Strictest Water Resources Management still many small and medium sized cities located along a System, setting three major control objectives, known as large number of small waterways without adequate flood the Three Red Lines: (i) water resources development and protection structures. utilization control; (ii) water use efficiency control; and (iii) water functional zone control. To strengthen water Ongoing Water Governance Reforms pollution control, the State Council issued in 2015 the Action Plan for Prevention and Control of Water Pollution Water resource management in China faces central-lo- (Ten Action Plans). China has also piloted innovative eco- cal and inter-jurisdictional coordination problems. In nomic approaches, including pilots on water rights and addition to a constellation of actors at the central govern- pollution rights trading. Finally, a new system of “River ment level, most water resource management functions and Lake Chiefs” has been established, making local are in practice organized and implemented by provincial senior officials responsible for each stretch of every major and local officials. Water Resource Bureaus typically lake and waterway. exist at provincial, prefectural or municipal, county, and sometimes township levels. These are typically collec- China recognizes the important role that water plays tively responsible for planning, allocating and regulating in the quality of the environment for society. Especial- local water use and conservation measures, water saving ly since the 18th National Congress of the Communist and flood control measures as well as developing and Party of China in 2012, the construction of an “ecological providing water infrastructure services. These measures civilization” has become one of the government’s high- should be implemented in accordance with the master est policy priorities. This includes a high-level focus on plans for water resources development and utilization resource management, environmental governance, and prepared for each of the river basins. Other entities, ecological protection. The 19th National Congress of the usually called “Environmental Protection Bureaus,” are Communist Party of China in October 2017 further high- responsible for monitoring and enforcing compliance with lighted the goal of building a “beautiful China” to meet pollution regulations. These two agencies have histor- increasing public demand for improved environmental ically had some overlapping responsibilities for water quality. Notably, the State Council announced a series of pollution control. These were addressed in the institu- institutional reforms in March 2018 to substantially rede- tional reforms introduced in March 2018. In addition to fine the responsibilities for water resource management. these hierarchically-organized bodies, river basin com- Highlighting a determination to address institutional bar- missions exercise many management functions, including riers to effective environmental and resource governance, water use planning, protection of water resources and these reforms include the establishment of the Ministry flood risk mapping at a basin scale. Despite these many of Ecology and Environment (MEE) and the Ministry of institutions, implementation of national water resource Natural Resources (MNR), along with consolidation and management policies and regulations is uneven at local optimization of responsibilities within the Ministry of levels, and in some cases local officials are hesitant to Water Resources (MWR) and other related ministries. cooperate with neighboring jurisdictions to address issues In announcing these changes, the Government cited a such as pollution and flood management. renewed commitment to environmental protection and sustainable use of natural resources. China has embarked on a series of effective reforms to address these technical and institutional water-re- Institutional reform is a continuous process and more lated challenges. Especially in recent years, China has remains to be done. Despite these reforms and the 4 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA POLICY BRIEF re-organization announced in March 2018, institutional Recommendations weaknesses remain in China’s water governance system. Priority 1: Enhance the legislative foundation for water Coordination, communication, and consensus-building governance. Many of China’s most important water sector among key stakeholders, including central and local reforms are based on, but not specifically mentioned in, governments and water user groups, should be strength- existing legislation. It is essential that China codify recent ened through more robust institutionalized processes. In major existing principles and reforms into laws to send addition, the roles and responsibilities of key institutions, strong policy signals to local officials and enterprises that such as the river basin commissions, require revision compliance will be taken seriously. China should take and re-thinking in light of the possible transfer of many several steps to enhance the legislative foundation for responsibilities for water pollution control to the Ministry water governance. of Ecology and Environment and those functions assigned to the Ministry of Natural Resources. Indeed, these recent Update the 2002 Water Law. In many countries, legisla- reforms invite a broad re-thinking of the institutional tion serves as the foundation for water governance. The framework for water governance in China. challenges of sharing water between different uses and between upstream and downstream users have in many A New Era of Water Governance in China parts of the world resulted in a complex body of water To address its water resource challenges, China needs law that determines, among other things, basic principles to address five key water governance reform priori- for how water is allocated and by what means or institu- ties. First, China needs to revise water-related laws and tions. The Water Law stands as the core of China’s water regulations to further strengthen the legal basis for water governance framework. Since the latest major revision governance. This includes updating the existing Water of China’s Water Law in 2002, many important laws and Law to reflect current challenges and strengthen the policies have been promulgated that have reshaped the enforcement of existing water pollution laws. Second, landscape and shifted priorities for water governance in the status and responsibilities for existing water gover- China. Accordingly, the Water Law should be revised to nance institutions, both at the national and river basin reflect these new principles and challenges that have levels, should be enhanced and their role in ecosystem emerged recently for water resource management in protection expanded. Focal points for policy coordination China. between different agencies, jurisdictions, and sectors The Water Law should be updated to: (i) reflect the ob- need to be clarified. Third, existing economic policy jectives of national ecological civilization reforms in terms instruments, especially mechanisms such as water rights of water governance and reflect the key water resource trading, should be improved upon and scaled-up where management policies; (ii) establish a clear institution- appropriate. More empirical evidence is also needed to al mechanism for addressing inter-jurisdictional water assess the effectiveness of these instruments. Fourth, pollution, including through the River and Lake Chief human and ecological systems need to be made more System; (iii) strengthen provisions related to water quality resilient to meet future threats and challenges. This enforcement and environmental impact assessment, includes expanding the use of green infrastructure ap- including improving the linkages with other laws such as proaches for flood management and experimenting with the Environmental Protection Law, Water Pollution Pre- water pollutant discharge permit trading and alternative vention and Control Law, Water and Soil Conservation financial mechanisms to reduce non-point source pol- Law, and the Flood Control Law; (iv) enhance the institu- lution. Fifth, data and information sharing need to be tional mechanisms and provide the legal foundations for improved to maximize China’s capacity for scientific and river basin management, including a more effective role participatory water decision making. The establishment of for basin management authorities; (v) provide clear legal a national water information sharing platform will help to support for water related data and information sharing; foster coordination and collaboration across agencies and and, (vi) clarify the allocation of powers and responsibil- will support innovation in the water sector. POLICY BRIEF 5 ities for implementing key water resource management 511 water sector PPP projects were initiated in China. policies following the establishment of the Ministry of Many of these projects involved wastewater treatment Ecology and Environment, the Ministry of Natural Re- and urban water supply. The 18th Party Congress’s Third sources, and existing entities, such as the Ministry of Plenum reforms, announced in 2013, envision a Deci- Water Resources, including those in relation to the Action sive Move to the Market in which PPPs are expected to Plan for Prevention and Control of Water Pollution, the play an even more important role in water infrastruc- Most Stringent System for Water Resources Management, ture provision and as a source of needed financing. The and the Ecological Civilization Construction pilot. While government has already identified water sector priorities there is a clear need to update the Water Law, there are for PPP investment (e.g., dams, urban water supply, and many options for how these updates can be undertak- water pollution control). Several important regulations en, and the supporting regulations should be amended have been promulgated to establish a basic framework accordingly. for PPPs. These include a set of State Council guiding opinions issued in 2014, as well as separate directives is- Strengthen enforcement of existing water quality stan- sued by the Ministry of Finance and the People’s Bank of dards. In China, as in many countries, the most import- China. The Ministry of Finance also established a National ant approaches of addressing water pollution is a set of PPP Center to provide policy research, advice, training, legislative and regulatory provisions that establish water and inter-agency coordination. The regulatory framework quality standards and penalties for violating them. These makes clear that PPPs are expected not only to contribute regulations are an especially important means of con- to a stronger and more diversified financing base but also trolling pollution from point sources such as factories and to improve coordination between the public, private, and enterprises. China has established standards for water civil society sectors in furtherance of policy goals. To fully quality indicators, including temperature, nitrogen, and realize this potential, existing regulations concerning PPPs chemical oxygen demand for surface and wastewater, need to be both codified and strengthened further. along with specific discharge and effluent standards for various industries, including iron and steel manufacturing, Codifying the existing regulatory framework would send and mining. Policies and regulations such as the Action a strong signal to private sector actors regarding the Plan for Prevention and Control of Water Pollution and opportunities for PPPs in the water sector. Consolidating the Most Stringent System for Water Resources Man- key policies and regulations issued by various national agement establish stringent standards for water quality. authorities, such as the guidance issued by the State However, enforcement remains a challenge, and several Council in 2014, the National Development and Resource options should be considered to strengthen enforcement Commission’s 2014 Guidance on the Social Capital Coop- of existing water quality standards. Current methods of eration Model and that from the Ministry of Finance, into enforcement include the increased use of fines, pub- a uniform set of regulations or enabling legislation would lic identification of cities and enterprises that violate enhance the operating environment for private sector pollution regulations, and providing a set of incentives, engagement in the water sector. Enhanced provisions, such as tying the promotion of local officials to meeting such as inclusion of model dispute resolution systems as water quality standards. Each of these methods should proposed by the World Bank International Center for the be considered as part of a holistic strategy to strengthen Settlement of Investment Disputes (ICSID), can also fur- enforcement. ther encourage the participation of PPPs. These reforms could take the form in a separate National Government Codify and strengthen the role of public-private partner- and Social Capital Cooperation Law (currently under ships (PPPs). China has become one of the world’s most formulation). important and active markets for public-private partner- ships (PPPs) in the water sector. Since 1990s, China has Priority 2: Strengthen national and basin water gover- accounted for a substantial fraction of the total number nance. A fundamental challenge for water resource man- of water sector PPPs globally. From 1990 to 2017, some agement is that many issues, including water resources, 6 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA POLICY BRIEF environmental flows and aquatic ecosystem issues, are Strengthen existing river basin commissions. One of the inherently inter-jurisdictional. These issues are shaped longest-standing principles of water resource manage- more by the boundaries of watersheds than political ment has been, so far as is practical, to organize water and administrative jurisdictions. Better integration across governance institutions at least partly along the bound- policy areas is needed to achieve policy objectives such aries of river basins rather than political boundaries. This as the Three Red Lines. Achieving water quality and pol- approach has been advocated as a solution to the prob- lution discharge standards, for example, depends in part lem of concurrently addressing such issues as water allo- on erosion control, managing fertilizer use in the agricul- cation, pollution, flooding, and navigation. Functions that ture sector, and rangeland management far upstream. a river basin institution can perform range widely and can Strengthened national and river basin entities can help include advisory, executive, regulatory or judicial powers. to ease coordination problems and promote cooperation The allocation of these functions is dependent on the horizontally (i.e., across sectors) and vertically (i.e., across context and purpose for their creation. There are a wide administrative levels). range of possible institutional models for strengthened river basin governance, and these need not possess all Create a national coordinating mechanism for water possible functions. Subsequent experience and research governance. China’s water governance has historically have shown that while there is often value in creating spanned many central government ministries as well as institutions that encompass whole river basins, they often relevant agencies at provincial and local levels of govern- face practical obstacles in terms of authority, autono- ment. Key agencies have included those for Water Re- my, resources, and legitimacy. Many accounts stress the sources, Environmental Protection, Housing and Urban-Ru- need for such institutions to serve a convening function ral Development, Agriculture, Land Resources, as well as by incorporating diverse stakeholder groups, as well as the National Development and Reform Commission. Each the need to forge links among river basin management has had responsibilities that are not always harmonized. organizations, central and sub-national governments, and Historically, for example, the fragmented responsibility smaller-scale organizations at the sub-basin level. between the former Ministry of Environmental Protection and other ministries has hampered policy responses to China has established river basin commissions, also called water pollution. The institutional reforms introduced in water conservancy commissions, for seven major river March 2018, including the transfer of relevant responsibil- basins. Legislation has moreover established the river ities for water pollution to the Ministry of Ecology and En- basin as the unit for planning. The primary purpose of vironment, are expected to partly address this situation. these commissions is to ensure the rational develop- ment and utilization of water resources within the basin. Nonetheless, China could benefit from creating a These have been established as agencies of the Ministry high-level, inter-agency mechanism with representatives of Water Resources and traditionally focused on water from the primary ministries concerned with different infrastructure and do not officially feature representatives aspects of water governance. The primary function of from other ministries or local governments. As currently this mechanism should be to coordinate policy efforts, constituted, the commissions lack sufficient statutory help reach consensus on key water policy issues, identify authority to perform key coordination functions, and national strategic priorities to guide local officials, and moreover do not include representatives from provincial provide guidance to river basin commissions. The coordi- and local governments. nating mechanism could take several forms, ranging from a council or committee to an ad hoc working group or River basin commissions should be given enhanced joint conference platform. All regulatory and administra- authority and clarity in the key areas of planning, coor- tive functions would remain with the individual minis- dination, implementation, enforcement, and financing. tries. This mechanism could be replicated at sub-national This enhanced authority is not intended to diminish or levels and also help guide the reform of river basin duplicate powers currently exercised by other existing commissions to improve policy coordination. entities, but rather to create the sorts of cross-scale POLICY BRIEF 7 linkages necessary to effectively govern resources shared areas. These individuals are typically senior officials who between users in multiple political jurisdictions. Five key are then responsible for each stretch or section of every reforms could help to re-shape China’s existing river basin major waterway and lake. The primary purpose of the commissions to make them more effective. First, the river and lake chief system is to strengthen enforcement roles and responsibilities of the commissions relative to and accountability concerning key water policy measures. existing territorial jurisdictions, such as counties, munic- These officials are responsible for meeting environmental ipalities, and provinces, should be further clarified and protection and water quality targets in their respective codified through legal means. Second, the representation jurisdictions, with the main responsibilities including of different ministries and entities on the commissions water resource protection, river bank management, water should be re-visited to ensure commissions are effec- pollution prevention and control, improvement of the tively capable of addressing the many water-related aquatic environment, and ecological restoration. River issues (present and future) in the basin. Third, greater and lake chiefs at the provincial level are also responsible clarity over the roles and responsibilities of the various for dealing with inter-jurisdictional issues. ministries is needed, in particular, as it relates to inte- Formally linking provincial River and Lake Chiefs with grated management of water quantity, water quality, and China’s existing river basin organizations will help to insti- environmental health. This is especially necessary in the tutionalize the River and Lake Chief System and promote context of the establishment of the Ministry of Ecology effective implementation. These linkages also provide and Environment and the Ministry of Natural Resources. a platform for helping reach consensus on matters of Fourth, the commissions may also establish implementa- common concern, along with a forum in which to share tion units to execute policy decisions, support planning, data and information to facilitate better decision making. and provide technical support, along with sub-basin level Formal coordination with the system of River and Lake committees or other decision-making structures to ensure Chiefs can also enhance the authority and effectiveness that water resource management policies are better im- of river basin organizations themselves. Providing a plat- plemented at local levels. Fifth, the commissions should form to integrate the perspective of senior administrative be more inclusive and adaptive to enable them to take policy makers can further enhance the ability of the river an overall role in water governance at the basin scale, basin organizations to coordinate sectoral and administra- serve as public, multi-stakeholder platforms for address- tive policies across different ministries and jurisdictions. ing key water related issues and balance the different roles and responsibilities with local water management in Priority 3: Improve and optimize economic policy in- the various jurisdictions. These reforms could be devel- struments. China’s ambitious policy reform agenda has oped using a pilot approach, selecting one sub-river basin created multiple (and at times overlapping) sets of eco- for initial implementation, and can be accomplished ei- nomic policy tools whose use and application need to be ther through provisions of a revised Water Law or through coordinated for maximum effect. Different prices, taxes, a separate National River Basin Management Law. and fees are levied on water users to encourage con- servation, capture externalities, and move closer toward Establish clear coordination between the provincial cost recovery. Some policies currently being piloted (e.g., River and Lake Chief System and existing river basin tiered pricing, water rights trading) can be expanded commissions. In December 2016, the Chinese govern- and represent global models. Further empirical research ment took a significant step in establishing a new system is however needed to assess the effectiveness of these for coordinated management of the country’s major instruments to optimize their impact. rivers through “River Chiefs” (hezhang). This was later extended to include major lakes and other water bodies Expand the use of economic policy instruments to through “Lake Chiefs”. This system clearly establishes promote more sustainable water use. Of the possible river chiefs at four-levels: provincial, municipal, county tools to promote sustainable water use, perhaps none is and township, as well as village-level river chiefs in some as important as water pricing and other economic policy 8 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA POLICY BRIEF instruments. The crucial role that water pricing plays in Resource Management, otherwise known as the Three water resource management was recognized by the High Red Lines. The core of this system consists of targets that Level Panel on Water (HLPW), whose 2018 final report limit total national water use, specify minimum standards notes that “valuing water appropriately is a cornerstone for water use efficiency, and establish clear limits on for better water management” and that “appropriate pollutant loads in water functional zones. The experience pricing of water, or water services, is a critically im- thus far with this system has been largely positive. Under portant way of recognizing part of the value of water” China’s hierarchical water management system, these (HLPW 2018). The power of pricing arises from its ability national targets are broken down by province and local to send a clear signal to water users about the scarcity jurisdictions according to a detailed, formulaic process. value of the resource, and the importance of conserving The target-setting process relies on a comprehensive it. Proper water pricing can also help to re-allocate water monitoring and evaluation system established in 2014 from lower- to higher-value uses, such as from irrigation that measures progress on several key indicators: total to industry, and be an important source of revenue for water quantity use, industrial water productivity, agricul- cost recovery (for both infrastructure capital costs and tural water use efficiency, and water quality. In 2016, two operation and maintenance). Globally, however, water additional indicators were added: reduction in water use prices remain generally too low to achieve these objec- per unit of GDP and reduction in total pollutant loads in tives. key water functional zones. China has enjoyed considerable success in leveraging eco- The target setting process could be improved in four nomic policy instruments to pursue various water policy ways. First, targets could also be defined in terms of actu- objectives. The People’s Political Consultative Conference al water consumption amounts (and not only withdrawal Decision on Comprehensively Deepening Economic Re- volumes) and used as the basis for water quantity per- forms, announced in November 2013, envisions a much mitting and control. This consumption-based control can greater role for the use of market-based policy instru- be aided by remote sensing technologies (as has been ments, and a corresponding re-orientation in the role of piloted in Turpan prefecture and other places in China). the state in water resource management. China has ap- Second, further target setting should be formulated jointly plied a range of economic policy instruments to promote by relevant ministries, including the ministries of Ecology sustainable water use, including water pricing reforms and Environment, and Natural Resources, to ensure that (e.g., tiered approaches, differential fees depending on both human and environmental water requirements and source) to promote conservation and water rights trading issues are adequately addressed. More broadly, wider to facilitate the re-allocation of water to its highest-value participation in the target setting process can help ensure uses. These reforms are broadly on the right track, but shared responsibility and accountability and consideration require further analysis of their effectiveness before being of ecological as well as human water requirements. expanded. This includes detailed empirical analysis of the Third, the use of different indicators, such as consump- value of water in the era of ecological civilization and on tion-based standards, can help ensure that proper signals whether current pricing structures and policies are having are being sent to this sub-sector. Moreover, actual field- their intended effects (e.g., reducing water use, curbing based irrigation efficiency measurements should be tak- groundwater over-extraction, and moving closer to cost en. Finally, greater flexibility may be introduced with the recovery and financial sustainability). To achieve the caps on withdrawal in the context of water rights trading. targets in the Three Red Lines and other water resource That is, local level targets can serve as established caps management policies, continued experimentation with for which the holder can then be empowered to buy and these instruments should be undertaken. sell with other local entities. By allowing such trades, participants can better minimize the cost of compliance Strengthen the effectiveness of the Three Red Lines. The of reaching national targets. Such an approach would also most important element of China’s current water gov- help to better leverage China’s existing pilot efforts to ernance system is the Most Stringent System for Water POLICY BRIEF 9 institute water rights trading systems at the national scale increasing urbanization and climate change, will require on a gradual basis. China’s policy makers to strengthen the resilience of both human and ecological water systems to flooding, Cross-reference water withdrawal permits and pollu- drought, and other forms of environmental change. While tion discharge permits. As is the case in many countries, drought will likely continue to impose significant eco- China regulates water withdrawal (or abstraction) primari- nomic costs on parts of China, future flooding may be an ly by granting water withdrawal permits to individual even greater challenge considering China’s rapid urban- water users. Water withdrawal permits are granted for ization and the increasing numbers of people at risk from five years, during which holders may request modifica- coastal and inland flooding. At the same time, additional tions to the original conditions, including changes to the investments must be made to preserve the functioning of permitted use volume or purpose. Similarly, China began aquatic ecosystems and the services they provide, includ- establishing pollutant discharge permit systems in parts ing water purification. China’s current water governance of the country in the late 1980s, which prohibit discharge framework faces two notable challenges relating to en- of designated water pollutants into waterways without vironmental protection: maintaining ecosystem services securing a permit to do so. In 2017, the Ministry of En- and addressing non-point source pollution, especially vironmental Protection issued instructions strengthening from agricultural sources. Fully addressing both challenges and expanding the pollutant discharge permit system will be essential to meeting China’s policy objectives with nationwide, requiring all stationary water pollution sourc- respect to improving the water ecological environment, es across 82 designated industries to apply for permits to requiring coordinated joint efforts by relevant authorities discharge into waterways. Unlike users with water with- at both central and local scales. drawal permits, pollutant discharge permit holders may sell excess emission volumes to other holders, thereby Strengthen resilience to floods. Flood control has long creating a pollutant emissions trading system. China uses been a priority for China’s water resource managers, and separate nationwide permitting systems for both water it has enjoyed considerable success in reducing flood risk withdrawal permits and pollutant discharge permits. and exposure. Over the past 70 years, about 47 million hectares of land area and 500 million people have been China could strengthen the administrative and regulatory protected from flooding, and the average annual number ability to control water pollution as well as total water of deaths from flooding has been reduced from about consumption by cross-referencing these water use and 9,000 in the 1950s to 1,500 by the early 2000s. Overall discharge permit systems. For example, if an enterprise investment in flood control infrastructure increased by discharges pollution more than its permit, that violation over four times just from the 1990s to the early 2000s. could trigger a limitation of the enterprise’s right (per- Much of this progress, however, is built on a compre- mit) to withdraw its supply of water (in addition to the hensive flood control system that includes infrastructure, fine or limitation associated with the pollution violation). early warning systems, and a closely coordinated flood Currently, many firms routinely violate their pollution response structure that includes disaster response head- discharge permits, and either ignore fines or pay fines quarters at central, river basin, provincial, municipal, and as a small cost of doing business. This dual penalty county levels. China’s 1997 Flood Control Law, amended would send stronger signals to the firm and incentiv- in 2007, designates certain regions as flood-prone, and ize improved stewardship of China’s water resources in requires authorities to develop appropriate flood manage- terms of both quantity and quality of water. Formulating ment plans. Consequently, an area of focus is the integra- regulations that explicitly cross-reference these systems tion of weather prediction and forecasting into decision can moreover promote further pollution and water use support systems to allow local officials to respond more control. quickly to predicted flood emergencies, helping further Priority 4: Strengthen adaptive capacity to climate and improve the capacity of the Flood and Drought Control environmental change. Macro-scale pressures, including Headquarters. Full dam and reservoir operation and 10 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA POLICY BRIEF evacuation plans have also been developed for 98 areas a separate mechanism. One option would be to establish designated as national flood storage and detention zones. a legal requirement that water allocations fully account for environmental water demands. Such a reform could China has built considerable physical infrastructure to be accomplished through a revision to the Water Law, control flooding. In many parts of the country the intro- which presently refers only to environmental flows rather duction of both structural and non-structural flood control than the broader issue of environmental water demands. measures have helped to mitigate the risk of catastrophic A second approach would be to follow the model of Aus- flooding. To further improve flood resilience, greater tralia’s Commonwealth Environmental Water Holder, and adoption of integrated flood risk management approach- establish a designated entity to manage a portfolio of es will be necessary. China should (i) expand the use of water permits to meet agreed ecological water require- green approaches to flood management, such as flood ments. This option would likely be more appropriate if retention basins, aquifer flood storage, and natural wet- China expands the use of water rights trading. A Chinese lands; (ii) strengthen the legislative basis for an integrat- Environmental Water Holder could be established through ed approach to flood risk management; and (iii) create legislation or amendments to the various regulations gov- and promote nationwide flood insurance schemes. These erning China’s water rights system. Either option could be efforts will help to further bolster flood resilience and integrated into the Three Red Lines target setting system adaptation to increasing flood risk due to climate change, as modalities for ensuring environmental water require- urbanization, and other macro-scale changes. ments are met. Explore Red Line targets for ecological water flows. Al- Sharpen policy focus on non-point source pollution. though the Three Red Lines include important targets for China has made significant strides in improving enforce- water quality, these targets do not fully address broader ment of point source pollution regulations, as well as ex- ecosystem functions and hydrological requirements. panding wastewater treatment. Non-point source (NPS) Ecological systems provide important ecosystem ser- pollution, however, remains a major challenge. Because vices and functions that can generate significant benefits NPS pollution is so diffuse, it is much more challenging to to human societies and economic development. Such monitor, regulate, and reduce. Moreover, managing NPS ecosystem services include purification and regulation pollution often entails significant changes to agronomic of water flows, oxygen generation, soil formation and and land management practices, which are often outside retention, food supply, habitats for plants, animal and the remit of water resource management agencies. Much micro-organisms, and recreational opportunities. A 2008 of the rapid growth in pesticide and fertilizer use has study, for instance, puts the value of water retention and been due to a combination of subsidies and policies en- water purification provided by wetlands and water bodies couraging farmers to boost yields, which has had the per- in the city of Shenzhen at about RMB 100 million, while verse effect of dramatically increasing organic pollution. a similar figure estimated in 2015 for Beijing’s Miyun Dis- trict is about RMB 60 million. Unfortunately, both studies Recognizing these challenges, the Chinese government conclude that urbanization and the attendant destruction has implemented a number of policy reforms to address and modification of wetlands and water bodies have sub- the problems of non-point source pollution. In 2015, the stantially reduced the value of these ecosystem services. Ministry of Agriculture announced that it would promote New ecological targets can nonetheless be set with due activities to reduce fertilizer application, increase fertil- consideration to the value of these critical ecosystem izer use efficiency, reduce pesticide use and introduce functions. more sustainable pest control measures. Targets were set to effectively cap national fertilizer and pesticide use A target such as the river and lake health index would through zero annual increases in application by 2020. incorporate the wider range of ecological water require- The Water Pollution Prevention and Control Action Plan, ments. To ensure that ecological water requirements are a landmark State Council directive formulated with input met, China can choose between a new red line target or from 12 ministries, singles out pesticide production and POLICY BRIEF 11 nitrogen fertilizers as sectors targeted for more stringent and local scales. Open data platform approaches can help enforcement and technological improvements designed to foster coordination and collaboration across agencies to reduce pollution emissions. These include the promo- and will support entrepreneurship, innovation, and scien- tion of actions to control agricultural non-point source tific discovery in the water sector. pollution and the preparation and implementation of in- Improve the legislative framework for producing and tegrated agricultural non-point source control plans. While sharing water-related data. It is widely recognized that these steps are important in reducing non-point source producing and sharing high-quality data are essential for pollution, the scale of the challenge is such that China good water governance and management. The impor- will require more ambitious, far-reaching policy options. tance of making such data accessible to a variety of Non-point source pollution therefore represents a promis- stakeholders, including water user groups as well as pol- ing area to engage in policy experimentation. These may icy makers, is heightened by the increasing variability in include (i) water quality trading programs, which promise water availability as a result of climate change and other to reduce the cost of compliance with more stringent global environmental changes. In its March 2018 report, water quality standards under certain conditions; (ii) the HLPW recognizes that access to water data is a pre- improved management of environmental water quality requisite to better water resource management around to assist in complying with water quality standards; (iii) the globe. The HLPW also issued Good Practice Guidelines research on policies for non-point source pollution control for Water Data Management Policy, which identifies approaches, particularly in rural areas; (iv) pilots for total seven key elements of water data policy: (i) identifying pollutant load discharge control at the basin scale to priority water management objectives; (ii) strengthen- mitigate water pollution risks; and (v) innovative financ- ing water data institutions; (iii) establishing sustainable ing mechanisms such as eco-compensation, payment for water data monitoring systems; (iv) adopting water data environment services approaches, or water funds to help standards; (v) embracing an open data approach to data finance natural capital alternatives to conventional water access; (vi) implementing effective water data infor- treatment technologies. The former approach has enjoyed mation systems; and (vii) employing water data quality success internationally and warrants further consideration management processes. Implementing these principles as part of an effort to push the frontier on non-point as part of a coherent water data policy often requires source pollution management. reform, which is best accomplished through building a legislative framework. Priority 5: Improve data collection and information shar- ing. China possesses strong technical capabilities in water Currently, various ministries and government agencies resource data collection and monitoring. However, these collect water-related data for their own analysis and use. rich data-sets need to be more widely shared, particularly There are often a number of challenges in sharing import- across government agencies, and better incorporated into ant data across sectors and agencies. These can prevent decision-making processes. Greater incentives and more optimized and integrated approaches to China’s water effective data sharing mechanisms are required among resource challenges. A strong, clear legislative mandate government agencies and between agencies within is needed for collecting and sharing water-related data, basins to share data and information. This is particularly as well as for specifying standards and key parameters important following the consolidation of responsibilities in on which data should be collected and by whom. These the Ministry of Water Resources and the establishment of regulations or legislation should mandate data-sharing the Ministry of Ecology and Environment and the Ministry between agencies and departments concerned with of Natural Resources, and provides opportunities to devel- water resource management and, where appropriate, op and support coordination through integrated informa- disseminate it to relevant stakeholders and the public at tion management systems that are based on complete, large. This can be considered with updates to the Water accurate and consistent data across the national, basin Law and related regulations. 12 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA POLICY BRIEF Create a National Water Information Sharing Platform. comment periods. For example, the government should Open access to water data can enhance the efficiency of continue the process of strengthening water user associa- water trading markets, improve water availability fore- tions. This right should be established through revision of casts, help agencies and stakeholders to collaborate more relevant legislation, including the Water Law. Third, more effectively, and give policy makers a more integrated specific mechanisms should be established to solicit the view of the challenges and potential solutions in water options, recommendations, and complaints of individuals resource management. Data currently reside in several to water resource management authorities. This may take different data management systems and not in a shared, the form of online or application based platforms to, for central location. A unified, National Water Information example, quickly and anonymously enable users to report Sharing Platform should be created, and government high levels of water pollution. Finally, the Water Efficiency agencies collecting data on water should be obliged to Leaders program should be fully utilized as a means of share their data through this platform. Making the portal promoting water conservation throughout the public and open-access and real-time also promises to improve re- private sector. These reforms should together support the sponse to flood and drought disasters. This portal should government’s objective to foster a “water-saving society,” be fully integrated into the Ministry of Water Resources in part through increased public awareness. as well as that of the Ministries of Natural Resources and In summary, China’s leadership recognizes that manag- Ecology and the Environment. ing the country’s water resources effectively is critical to Strengthen the role of public awareness and participa- achieving sustainable economic growth. Existing legisla- tion. China’s approach to water resource management tion, institutions, and policy have helped to ease water has been heavily dependent on regulation and admin- scarcity, have begun to address serious water quality istrative measures. While this approach has enjoyed problems, and have greatly reduced the risk of flooding. some significant successes on issues like flood control, But overuse and pollution of limited water supplies con- it does not necessarily engage the full range of relevant tinue to threaten China’s strategic development priorities. stakeholders, from non-governmental groups to private To achieve these priorities in this new water governance businesses, necessary to address complex water resource strategy, China needs to strengthen and better integrate management issues. Engaging the public can help ease water management at both national and regional scales, the task of monitoring water quality, which has historical- provide more water for environmental uses, expand the ly been a significant challenge for China’s local environ- use of market mechanisms to drive more sustainable wa- mental protection authorities. Several reforms would ter use, and adopt transformational approaches to combat help to improve public participation in China’s water water pollution. Together, these measures provide a strat- governance system. First the public’s “right to know” egy for a new era of water governance that will enable water-related data and information should be clearly China to move to a higher quality, more environmentally established. Adequate data and information sharing can conscious economic structure. Meanwhile, the proposed help reduce transaction costs to policy implementation water management approaches can provide useful and improve outcomes. Second, the public, including experience and duplicable models for other countries in individual citizens and non-governmental organizations, tackling the challenges of water sustainability in the 21st should be given the right to participate in water resource century. decision-making, such as through public hearings or Watershed A New Era of Water Governance in China