The mainland may face a crippling water shortage by 2030 unless more is done to raise storage capacity, with supply disruptions already affecting at least 11 provinces and some businesses, analysts warn.
'Business as usual means China will experience a water shortage of 199 billion cubic metres by 2030,' Debra Tan, director of non-profit group China Water Risk, said. 'Water resources are falling on a yearly basis and increasing scarcity will affect business bottom lines, stifle growth, and threaten social stability.'
Tan said the predicted shortfall was more than double the amount of water used by mainland cities in 2009. One manufacturer had already shut down factories in several provinces, partly due to water shortages, and the crisis was already costing the economy 2.3 per cent of its GDP.
'The business impact of China's water shortage is already happening,' HSBC Asia-Pacific director of climate change strategy Chan Wai-shin said. To address the challenge the central government had set various water targets for 2015 and 2020, making companies change the way they used water.
'The 12th five-year plan stated categorically that the water price will rise,' Chan added.
Although mainland water tariffs had risen, they were undervalued three to five times, Tan estimated. 'The government can't whack on a sudden high water rate hike, or there may be social instability. But rate hikes are necessary. So they will start gradually with industry water first.'
The Ministry of Water Resources has said 4 trillion yuan (HK$4.9 trillion) will be spent on water infrastructure over the next decade.
But while the government had invested substantially in water treatment plants to improve supply, the plants were expensive to run and, in many cases, idle, according to Isabel Hilton, editor of international non-profit forum chinadialogue.
'People switch them on when inspectors come and switch them off after inspectors leave,' Hilton said.
Tan said 11 of the mainland's 31 provinces - including Jiangsu, Shandong, Hebei, and Henan - fell below the World Bank's water poverty level of 1,000 cubic metres per person per year.
These provinces accounted for 45 per cent of the mainland's GDP, 40 per cent of its agricultural output, and more than half of its industrial production. Another eight provinces, including Guangdong, were near the water poverty line.
Hilton said some of the industries involved in the central government's policy of shifting industries to western China - where some of the 11 parched provinces were located - were heavy water users, raising questions about their future. The 11 provinces also had a combined population of half a billion, raising social issues as well, Tan said.
An HSBC report noted that 'full stomachs and clean water to drink are top priorities for Chinese officials' and warned that water scarcity was a partial cause of rising food prices. If the shortages worsened, banks might be compelled to lend substantial sums to tackle water problems, it said.
The report cited the example of a drought last winter that forced the central government to pledge 1.3 billion yuan in aid. 'Although the magnitude of these loans is insignificant, it could have an impact should resource stress become more acute. Water resource stresses are real in China and climate change makes these stresses more acute,' it warned.