China remains in a water crisis

Natural water shortages exacerbated by rising demand and chronic pollution have transformed China’s water problem into a crisis. The country’s water resources per capita (2,143 m3) are only 1/3 of the world average (6,520 m3), while its consumption per unit of GDP is 4 times the world’s average. The country has 20% of the population living on earth but 6.5% of its water resources.

At present 250 mn people in rural areas do not have a safe drinking water supply while 100 mn people in 400 cities suffer water shortages. By the end of 2010, 32% of China’s water resources were non-potable, according to the Ministry of Water Resources. Although this is an improvement from 37% at end-2008 and 53% at end-2003, water quality remains very much a concern. About 50% of waste water is released untreated as effluent into rivers and the sea.

Problems are compounded by the fact that the northern part of China has only 20% of the country’s water resources but 46% of the population and produces 44% of total GDP. Water resources in the North are mostly already exploited. Uneven rainfall and severe droughts have complicated the situation. For years already the central government has been working on the ‘South-to-North’ water project to bring water from well supplied areas in the South to drought-prone northern cities. The entire project, through three routes, is expected to be completed by 2050, reaching a flow capacity of close to 45bn m3 annually to cover 300 mn people.

We think that water is arguably one of the top environmental issues in China. Half of the emergency incidents concerning the environment reported by the State Environmental Protection Administration in 2009 were over water.

Hence, China has set strict targets for water development in the 12th Five Year Plan (2011-2015) announced in March 2011. Targets to be reached by 2015 include, among others:
• Reduction of water consumption per unit of industrial output by 30% over 2010 level
• Target urban waste water treatment rate of 85%
• Promotion of water supply expansion from cities to rural areas
• Increasing water tariffs and tariff reforms

On the subject of pricing it is notable that China’s water tariff, computed as a percentage of disposable household income, is significantly lower than its international peers. The average water bill as a % of net disposable income is 1% while it is 10% in Turkey and 3% in Brazil, for example.

It remains to be seen how this will evolve over time.