China’s Deepening Water Crisis

Surging demand for water resources and extensive pollution have led to a well-documented water crisis in China.

Falling water tables, ground and river water pollution, water-borne disease, agricultural capacity constraints and an inability to introduce real pricing around water are focusing attention on this critical issue.

The government and industry can no longer be complacent about the availability of clean and plentiful water in China.

The facts speak for themselves:

• China has 22 percent of the world’s population but only 7% of its freshwater
• About 700 million Chinese drink water contaminated with waste. Consequently, water pollution sickens 190 million and causes an estimated 60,000 premature deaths annually
• Two-thirds of Chinese cities face water shortages, which are particularly severe in Northern China, home to 45% of the population but 20% of water resources
• Because of water mismanagement, illicit household and corporate discharges, inadequate water and wastewater treatment systems, water is often not useable
• Estimates are that 90% of the aquifers of Chinese cities are polluted
• More than 75% of river water in urban areas is unsuitable for drinking or fishing
• 30% of river water throughout the country is unfit for agricultural or industrial use
• China’s water productivity is low compared to its G20 peers, requiring about four times as much water withdrawn per US dollar produced as the average member

In reality, China is in the midst of a full-blown crisis. Left unaddressed, this could lead to dramatic consequences  in soaring health-care costs, lost productivity, unemployment and dramatic declines in agricultural production.

Yet  China’s water challenges are low on the agenda of both investors and the companies in which they invest, despite the material and potential reputational risk of choosing to ignore water consumption and usage.

Investors are choosing instead to continue to push resources into water-intensive  industries, build ever-more polluting power capacity, with little regard to the environmental consequences, the excessive water consumption and pollution of  waterways and aquifers.  Yes, China’s government has taken remarkable steps toward pulling its 1 billion citizens out of poverty – but at what future cost?

Responding to some of these questions, ADMCF and Hong Kong think tank, Civic Exchange along with a range of Hong Kong and Mainland China organizations have developed a web-based water portal and network. Targeting primarily investors and business, the portal will launch later this month under the working title, the Asia Water Project: China.

The aim is to help the corporate and investor communities make informed decisions around water. A community section will offer answers to more general China water-related queries.

In large part, this initiative grew out of ADMCF’s work with Chinese environmental activist, Ma Jun, and the Institute of Public and Environmental Affairs, ( http://en.ipe.org.cn/) and a recognized need to translate and communicate his air and water pollution maps to the investment community. Increasingly, investors are sensitive to the reputational risks around connections to polluting enterprises, while  many brands, for the same reasons, are showing concern about greening their supply chains and are working with Ma Jun and others to do just that.

Lack of data and research is consistently cited as a barrier to considering these risks strategically. The Asia Water Project portal responds to this information gap, bringing together a range of information sources in one space. In targeting investors, the goal of the Asia Water Project (AWP) is to consider risks and opportunities by divulging water-related information and commissioning independent and original water research. For companies, AWP is designed to flag best-practices in water management (supply, use and pollution) as well as to generate discussion and awareness around corporate water disclosure.

The past decade has shown how companies can effect change.  Multinationals have played a significant role in labour and climate change considerations taking root in China, encouraged largely by concerns around reputational risk and more recently legal concerns. With the right catalyst, we believe corporate action could play a similar role around water.

Despite obstacles such as endemic corruption and historically weak enforcement of pollution laws, the drivers of change look set to accelerate as the water crisis deepens. Water issues are increasingly clear on China’s policy agenda. A series of specific policy goals and priorities for water resource management feature in China’s 11th Five-Year Plan. The water pricing debate is likely to intensify as resources get tighter and inefficient water use, poor infrastructure and pollution continue.

Furthermore, with China projected to spend up to 1 trillion RMB by 2025 managing water scarcity issues, increasing attention is being paid to Chinese investment opportunities in water supply infrastructure, water treatment facilities and demand management technologies.

These and a myriad of other issues have implications for both the opportunities and risks facing investors and companies operating in China.