China’s top threat?

New report points to water crisis facing industry

China’s top threat?

Please use sparingly

The Chinese have long been accustomed to associating their rivers with colours. The best example is the Yellow River, the country’s second-longest after the Yangtze. The Yangtze also gets local mention as the Golden Waterway or Gold Sands River for upstream stretches, although as we reported in WiC164, the colour identifier changed in September, when its waters turned blood red on passing through the city of Chongqing.

The change shocked local residents, although the reddening was explained away by officials as a natural outcome (heavy rain washing large amounts of sediment into the water, apparently).

Perhaps, although the Jian River in Henan province also turned red last year, this time after a workshop in Luoyang dumped red dye into the city’s storm water pipes.

For environmental groups, such incidents renew concerns about the pollution of local water.

It is no great secret that China’s water resources are under severe strain. But the sense of impending crisis means that water availability is now getting much more policy attention from Beijing (see WiC139). That’s a paradigm shift: over the last three decades industrial planners gave water much less thought, largely regarding it as a costless and limitless resource.

That is no longer the case. Others are also identifying water’s critical role in China’s economic future, including a recent assessment co-authored by HSBC’s Climate Change Centre and the consultancy China Water Risk. The report offers various forecasts, including the observation that water shortages will be a major drag on growth, not least because water is so important in producing the country’s electricity.

Currently, 97% of China’s electricity requires water to generate and there is little sign that this dependency will be much reduced in future. “Our analysis shows the proportion of installed capacity that relies on water would fall a mere 10 percentage points to an estimated 87% in 2030,” the report suggests. But the problem is that China’s power demand is rising quickly, meaning a lot more water is going to be required in future to generate it. HSBC calculates China has plans to add 1,212 GW of “water-reliant” power by 2030, or at least 5.9 times India’s total power capacity.

But the report casts doubt on whether enough fresh water is available for all of these new power plants to go into operation. Water resources are already stretched. Six regions (Beijing, Tianjin, Shanghai, Jiangsu, Hebei and Ningxia) are running water deficits – meaning they are withdrawing more water than can be replenished naturally. Eleven provinces in China are also deemed ‘water-scarce’, with eight experiencing ‘extreme scarcity’, putting them on a par with Jordan, Syria and Palestine.

These are not provincial backwaters, either. The water-scarce provinces contribute 45% of China’s GDP and 51% of its industrial output.

In March this year the central government issued a national water management decree, setting quotas for usage for the periods ending in 2015, 2020 and 2030 respectively. It also announced Rmb4 trillion of new spending on water management infrastructure. The goal is to cap annual water usage at 670 billlion cubic metres by 2020 and 700 billion cubic metres by 2030 (versus 602 billion cubic metres in 2010).

But HSBC notes that the growth plans for new (water-reliant) power stations exceed these proposed caps substantially. That leads it to conclude that some of the power projects will have to be vetoed, not for lack of demand, but through lack of water.

HSBC also suggests that the real crunch for Chinese industry will come between 2020 and 2030 when it faces a double whammy of diminished water supply (industrial usage will have to be capped) as well as a shortfall in electricity.

Either way, output looks like it will be hit hard if power and production cannot be generated in a more water-efficient manner.

If you’re looking for an excuse to feel bearish about China over the longer term, water may be the best candidate.

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