This article is taken from World Energy (WE) number 46 – Water stories

Water has been central to China’s successful social and economic development throughout millennia. Historic symbolism provides an important foundation that has been forged with contemporary approaches to the management of water to create a unique governance system. The dual nature of water to nurture life but also become turbulent and destructive initially gave rise to a sense of mystery leading to the early view that dragons inhabit and dominate water. Such veneration ensured that the precious source of water was protected and captured in ancient axioms such as “drink the water, remember its source.” In contemporary times, the so-called Nine Dragons (九龙治水) have been used to describe the challenges of cross-sectoral coordination and inter-jurisdictional cooperation among the ministries and commissions responsible for managing various aspects related to water in China.

Today, China is facing a watershed moment both in terms of socio-economic development and efforts to construct an “ecological civilization.” Since the introduction of reforms that shifted the country to a market-based economy, China has emerged as the world’s second largest economy—its share of the world economy has increased from 1.5 percent in 1978 to 15 percent today. During this same period, per capita income has increased more than thirtyfold, from USD 300 in 1978 to an estimated USD 10,276 in 2019, lifting more than 850 million people out of poverty with the goal of eradicating extreme poverty by the end of 2020. No other country has achieved as much in such a short period of time in recent history. However, this rapid economic ascendance to upper middle-income status has brought with it a number of challenges, including rapid urbanization, uneven regional development, challenges to ecological and environmental sustainability and issues of inequality.

China’s success has been underpinned by significant investments in infrastructure, improving the provision of electricity, water, telecommunication and other services required to sustain a modern economy. Through these investments, China has reportedly contributed more than half of the infrastructure investment in Asia and almost 30 percent of the global infrastructure investment between 2007 and 2015. Among other achievements, these efforts contributed to China reaching all of its Millennium Development Goals (MDGs) and made a substantial contribution to global achievements— accounting for 19.5 percent of the 2.6 billion people who gained access to improved water supply and 26.2 percent of the 2.1 billion people who gained access to improved sanitation during the MDGs. 

Recognizing the continued importance of water, China has invested significantly in managing the development of its water resources. Today, China has more dams than any other country in the world, dams that store over 800 billion cubic meters of water with the national total water supply capacity having reached 618 billion cubic meters in 2015. This represents a five-fold increase from the total when the People’s Republic of China was established. Hydropower capacity exceeds 341 million kilowatts and water services have increased to 97 percent of the urban population, with 76 percent of the rural population having gained access. More than 413,000 kms of flood control structures have been built in all of the major river basins, providing protection for more than 500 million people and about 47 million hectares of land area. Notwithstanding these significant achievements, China still has serious water-related problems.

Despite being the world’s second-largest economy and most populous country, China possesses only six percent of the world’s freshwater resources with availability per capita one-fourth the global average. China’s water resources are unevenly distributed across space and time, with water shortages especially acute in China’s energy-producing regions. For instance, the Yellow River Basin accounts for two percent of China’s renewable water resources, 13.3 percent of arable land and almost 50 percent of total coal reserves, while contributing eight percent of the national GDP and supporting nearly nine percent of the national population. Over 50 percent of China’s coal fired power stations, which require substantial amounts of water for cooling purposes, are located in water-stressed regions. In some areas the development of water resources already exceeds renewable capacity and several large cities face severe water shortages. Water use efficiency is also relatively low, with measures of GDP per cubic meter and industrial value added both lower than global averages. Water pollution meanwhile continues to impose serious economic, ecological, and health-related costs.

Reflecting the duality of water, the high level of exposure to flooding in China is estimated to cost on average about one percent of gross domestic product (GDP) per year, with roughly 80 percent of agricultural and industrial added value and more than 67 percent of the population located in flood-prone areas. This includes 90 percent of large and medium cities, with direct flood damage in more than 150 of these cities estimated at around USD 22.5 billion (RMB 160 billion) in 2015. These losses are expected to increase with a warming climate, and this outcome will have global implications, impacting markets and industries around the world.

China has introduced a number of initiatives to address these complex challenges. At the central level, the government is embarking upon a transition to a more balanced and sustainable economic growth model. This is built around an emphasis on sustainable resource management, environmental protection and ecological conservation and reflects a shift in societal values and increasing demands for improved environmental quality. These policy measures are embedded in China’s 13th Five-Year Plan (2016-2020) and the 19th Party Congress Report (October 2017), which called for a “beautiful China” founded in a new era of “ecological civilization.” This new era will pursue productivity and innovation-driven development, rebalance consumption and services and further open the economy, increase equitable access to basic public services and reverse environmental degradation. These guiding policies highlight the development of services and measures to address environmental and social imbalance and include specific targets to reduce over-exploitation of water resources and pollution, increase energy efficiency, improve access to education and healthcare and expand social protection.

Within the urban environment China has launched the Sponge City initiative, an important transition and contribution to the realization of an ecological civilization. Sponge cities take a comprehensive planning approach to maximize the use of nature-based solutions to address flooding, improve community and environmental wellbeing and increase adaptation to climate change. In the Sponge Cities initiative, thirty pilot cities have been selected and the goal is to have 80 percent of urban areas across the country sponge-like by 2030. In support of these efforts, cumulative investments in sponge city projects in Beijing, Shanghai, Shenzhen, Wuhan and other areas are expected to reach RMB 1.9 trillion (USD 300 billion) by the end of 2020. Most of this initiative relies on government programs to provide financial support for implementation. 

A series of innovative reforms have also been implemented to address specific technical and institutional water-related challenges, including water scarcity, water pollution, ecological degradation and the increased risk and impact of floods and droughts. In 2011, the Government passed the No. 1 Central Government Document on Accelerating Reform and Development for the Water Sector which focuses on key water resource issues and targets to be achieved within 10 years. The central vision of this agenda was the development of a “system for rational allocation and efficient utilization of water resources” and “a system for governance of water resources.” These objectives and principles are in turn reflected in Three Red Lines, designed to establish specific targets that cap total water use, promote water use efficiency and control water quality. 

The first of the red lines relates to water withdrawals and caps total water use at 700 billion cubic meters (bcm) by 2030. In 2014, withdrawals in China were estimated at just over 600 bcm per year compared to over 760 bcm per year in India, the world’s largest freshwater withdrawal, and the United States at 480 to 490 bcm per year. Redline withdrawals at 700 bcm would be equivalent to around 24 percent of China’s total renewable water resources. While the total withdrawals are nearly three times global averages, there are a number of influencing factors, and China's water withdrawal per capita is lower than that for other upper middle-income countries. 

The second of the red lines relates to water use efficiency and targets industries to reduce their water use per RMB 10,000 (USD 1,450) of industrial added value to 40 cubic meters of water by 2030. The more general measure of water productivity, defined as GDP per unit of water use, shows that water productivity in China is around USD 13.71 per cubic meter. This is below the average for low income (USD 17.26 per cubic meter) and lower middle-income countries (USD 19.66 per cubic meter) and nearly three times lower than that of other upper middle-income countries, which average around USD 37.36 per cubic meter. While there are a number of contributing factors to be considered, this is also true when compared with countries that have a similar endowment in terms of water resources per capita. 

To improve water quality, the third red line and the Action Plan for Prevention and Control of Water Pollution issued in 2015 have been coupled with innovative economic approaches. These include pilots for trading water and pollution rights and a comprehensive water resource fee-to-tax reform, one that imposes volumetric pricing mechanisms levied on the use of surface and ground water to encourage efficient use and effective conservation of water. A system of “River and Lake Chiefs” has also been established to strengthen enforcement and accountability regarding water use control, water quality protection and restoration of degraded waterways. With more than 1.2 million river chiefs having been appointed since their introduction in 2017, this system makes senior officials at the provincial, city, county and village levels responsible for addressing water pollution in each stretch of every major lake and waterway, including resource protection, shoreline management, pollution prevention and control and ecological restoration. The river chief system has also created a platform for collaboration that has proven useful in facilitating cross-sectoral coordination and improved inter-jurisdiction cooperation.

In combination, the Three Red Lines and the accompanying regulatory infrastructure form the foundation of China’s current water policy. These are among the world’s most ambitious attempts to define strategic water policy objectives. While infrastructure will continue to provide an important foundation for social and economic development, China is today an upper middle-income country facing a number of complex development challenges. Among them, China’s rapid economic growth has exceeded the pace of institutional development, market reforms are incomplete, and per capita income and other indicators remain below the average of OECD countries. There are important institutional and reform gaps that need to be addressed to ensure a sustainable growth path, effective policy design and implementation and improved coordination between branches of government. Furthermore, the next generation of reforms will not only need to sustain the hard-won gains but increasingly focus on productivity increases and innovation, coupled with institutional improvements that can respond to new challenges. Among others, these reforms will need to respond to the changing nature of society and meet increasing demands for improved environmental quality, which emphasizes sustainable resource management, environmental protection and ecological conservation. 

China’s future development trajectory will be determined by the ability of its key policy decisions to address the important institutional and reform gaps that can ensure a sustainable growth path. As the country embarks upon a new era of ecological civilization, significant investments have already been made and China is reevaluating and adjusting its traditional resource- and emission-intensive development trajectory. This transition to a slower but more balanced and sustainable growth entails shifting from an investment and export-led economy based on labor-intensive manufacturing towards one led by domestic consumption, services and productivity. This requires the decoupling of economic growth from resource consumption and environmental degradation, as well as improving equitable access to basic public services and addressing aspirations of an increasingly prosperous society. Improving water governance and keeping the so-called Nine Dragons (九龙治水) at bay will continue to be central to the success of this transition.

Effective water governance also requires a holistic understanding and critical re-examination of the value associated with the benefits derived from water. These are still lacking in many water related policies in China. Water policy decisions involve inevitable tradeoffs that should not only be based on a holistic understanding of value but that are also adaptive to the changing value of water across time and place. The High-Level Panel on Water emphasized that valuing water holistically means recognizing the full range of direct and indirect benefits and risks associated with water, which may be cultural, spiritual, emotional, economic, environmental, ecological and social. In line with the call to action from the High-Level Panel on Water, China is investing heavily in efforts to improve the valuation of water in order to inform tradeoffs among competing demands. These will be fundamental to ensuring more transparent, efficient and equitable policymaking. Making the multiple values of water explicit will also be central for China to realize sustainable solutions that can reconcile these competing demands, strengthen institutions and investments for resilient water management and inform the goal of constructing an ecological civilization. 

Water will continue to be central to the realization of China’s sustainable economic prosperity. With many countries facing unprecedented pressure on water resources, the Chinese experience also has the potential to provide important contributions to the global discourse. Estimates show that with current population growth and water management practices, the world will face a 40 percent shortfall between demand and supply of water by 2030. Furthermore, chronic water scarcity, hydrological uncertainty and extreme weather events such as floods and droughts are perceived as some of the biggest threats to global prosperity and stability. The Chinese experience in managing the development of water resources over millennia will have important lessons for other economies, as well as informing efforts to address global risks to economic progress, poverty eradication and sustainable development.

A Lead Water Resource Specialist for China at the World Bank Group, Marcus Wishart has more than 25 years experience working on the management of integrated water resources development in more than 20 countries across Africa, Asia, Australia, the Pacific, Latin America and the Caribbean. He currently leads a collaboration with Gu Shuzhong of the Development Research Center of the State Council in China looking at the value of water in the construction of an ecological civilization.

*Other contributors: GU Shuzhong, LIAO Xiawei, LI Weiming