If You Think China’s Air Is Bad …Drinking water has become a casualty of rapid industrialization

November 7, 2013

If You Think China’s Air Is Bad …

By DAMIEN MA and WILLIAM ADAMS

For visitors, China’s water problem becomes apparent upon entering the hotel room. The smell of a polluted river might emanate from the showerhead. Need to quench your thirst? The drip from the tap is rarely potable. Can you trust the bottled water? Many Chinese don’t. What about brushing your teeth? Measured by the government’s own standards, more than half of the country’s largest lakes and reservoirs were so contaminated in 2011 that they were unsuitable for human consumption. China’s more than 4,700 underground water-quality testing stations show that nearly three-fifths of all water supplies are “relatively bad” or worse. Roughly half of rural residents lack access to drinking water that meets international standards.For all of the dazzling progress that the world has come to associate with a booming 21st century China, the quality of its water supply has failed to keep up with the country’s leap into modernity.

Policy makers and the Chinese public rightfully blame lax environmental controls and shoddy enforcement. But the more fundamental problem is that the country simply doesn’t have enough water. Breakneck and large-scale industrialization has overwhelmed scarce supplies — and drinking water has become one of the most visible casualties.

China contains only about 7 percent of the world’s fresh water while sustaining nearly 20 percent of its population. In stark contrast, Lake Michigan in the United States holds about 4 percent of the world’s freshwater (the Great Lakes combined contain about 20 percent).

Despite China’s limited resource base, the country’s vertiginous and dense urban jungles continue to grow. More water is needed with each skyscraper added to urban China’s skylines, each ton of coal burned to heat them, and each steamer of dumplings sold on their steps. And every time water is discharged from a new residential complex or power plant, it returns to the river basins a little dirtier.

China’s two major rivers — the Yellow River and the Yangtze River — illustrate the problem. Both waterways traverse the country’s major industrial belts as they flow from west to east. By the time the water reaches China’s coastal population centers, it requires extensive treatment before it is potable.

Unfortunately for China’s neighbors, water scarcity has ramifications beyond Chinese borders. Tensions over how to share water from the Mekong River, one of the world’s longest, have rattled relations with the country’s Southeast Asian neighbors.

The Mekong flows out of China’s southwestern Yunnan Province and spans throughout most of Southeast Asia. Like most major waterways, the Mekong is a central artery that sustains development, commerce and trade — and local livelihoods.

China has built a number of new hydroelectric dams along the river in recent years to support economic development in the relatively impoverished southwest. The result has been a slowing of the Mekong’s flow when it reaches China’s downstream neighbors, threatening the health of Southeast Asian fisheries and water security. Water levels in the Mekong Delta reached their lowest levels in 50 years in 2010, igniting discord between China and its neighbors.

To tackle this growing challenge, Beijing is turning to policies that address both the increasing demand and the limited supply.

The government has started a gargantuan supply-side project — the “South-to-North Diversion” — which will redistribute water from the wet South to the arid North through a massive complex network of aqueducts. It is an intriguing idea in the abstract, but leakage and contamination may make the water unusable by the time it reaches the cities of the North. And it does nothing to increase the overall scarcity of fresh water.

Other solutions, mostly requiring large investments in technologies, are being tested as well. A mega desalinization plant has been built as a pilot project in the northern city of Tianjin. Beijing has also called for more substantial investment in wastewater recycling technology. Meanwhile, Chinese industry, under pressure from the government, is seeking solutions for more efficient water usage. Altering water prices, though politically sensitive, may help better manage demand in the future.

Still, there is no silver bullet to quickly and cleanly solve the problems. Many of the technological solutions are costly and difficult to scale-up rapidly.

If the past 35 years of a resource-intensive economic boom have demonstrated anything, it is that the Chinese government is capable of producing growth, revving it up when necessary and reining it in when domestic priorities demand. But the country’s leadership must now face the legacy of a long boom that drew down a finite resource base to an extent that the world has yet to grasp. Major changes must come for how China manages these scarce resources — if not willfully, then by the indomitable force of necessity.

Damien Ma is a fellow at the Paulson Institute and William Adams is a center associate of the University of Pittsburgh Asian Studies Center. This article is adapted from “In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade,” published in August.

 

November 7, 2013

China’s Dirty Air

Air pollution has reached appalling levels in China, the world’s biggest carbon emitter. But we all knew this was coming and should not be surprised.

The Chinese economy has grown spectacularly by following models of advanced economies. Economic catch-up can be a matter of choosing what and when from a proven menu, though too often that approach underestimates the costs connected to a particular development tool. It was known, for instance, that allowing the use of cheaper gasoline with high sulfur content to reduce automobile operating costs and increase car sales would lead to severe air pollution.

Xie Zhenhua, vice chairman of the National Development and Reform Commission, China’s top economic planning body, admits that pollution is harming the mental and physical health of the nation’s citizens, that China has an “obsolete development model” with an “unreasonable industrial and energy structure.” Yet China, putting economic growth as its foremost goal, has consciously pursued an obsolete model with all the known downsides. It unwisely acted as if environmental degradation is an unavoidable byproduct of economic growth.

Mr. Xie says that China will see improvement in air quality in about 5 to 10 years. China is only now belatedly beginning to adopt the kind of environmental policies that worked for advanced economies more than a generation ago.

Still, irreversible damage has already been done; carbon emissions have contributed to global warming while other pollutants have damaged the ecosystem, wildlife and human health, leading to further increases in respiratory diseases over the next decades. The economic cost of such damage is substantial. The World Bank estimates that the cost of environmental degradation and resource depletion is equivalent to 9 percent of China’s gross domestic product.

Mr. Xie, who is scheduled to participate in the global climate talks in Poland next week, should squarely face that fact and understand that investing in environmental improvement is an economic activity (like building cleaner coal power plants) with real gains in terms of employment and technological advances. While China has thought of pollution as a necessary cost of becoming an advanced economy, it should understand that antipollution investments are also drivers of economic growth.

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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