In the desolate spot where the Yellow River roars through a dam stretched between the stark cliffs formed from the Loess Plateau, a desperate solution is being sought to the growing water shortages plaguing northern China. At Wanjiazhai, where Shanxi borders Inner Mongolia, the work goes on round the clock, seven days a week, to construct tunnels and channels to divert water to Taiyuan and the Datong and Pingshuo coal mines. Much of China depends on Shanxi's energy, but its cities and industries are fast running out of water. Yet the World Bank-backed project is controversial - the Yellow River is drying up and a deadly fight is on among China's provinces for its dwindling resources. 'This is the biggest project of its kind in China. And there is nothing so complicated as this anywhere else in the world,' boasts Fan Anshun, manager of the Wanjiazhai Yellow River Diversion Project Co-operation. From the cliffs above the site, the 6,000 men working on the project look like tiny dots moving along the dam below. The dam, which will create a reservoir and generate electricity, was started four years ago and is nearing completion. Attention is shifting to a scheme to pump the water up from the river bed through tunnels carved through the mountains. Western companies employing some 80 Austrian and Italian engineers are taking part. 'It's very difficult,' says Josef Gruber, project manager for an Austrian consortium. To reach Taiyuan, Shanxi's capital, the water will travel over some 360 kilometres and go through 146km of tunnels. The longest will be 42km. Other parts of the projects will bring the water to Datong, China's largest coal-mining centre, at the other end of the province. The total cost will be US$1.35 billion (HK$10.45 billion), of which the World Bank is contributing US$400 million. Northern China is running out of water in what some believe is the world's worst ecological catastrophe since Soviet water engineering projects drained the Aral Sea. So desperate is the water shortage in this province of 30 million, that Beijing even considered moving the industrial base out of Shanxi or relocating Taiyuan to the banks of the Yellow River. Taiyuan's per capita water resources are only nine per cent of the country's average, and Datong is getting only half the water it needs. 'The water shortage keeps getting worse and worse. There's no water except for a few hours a day,' complains Liu Runtang, vice-director of the Shanxi Water Conservancy Bureau. 'We don't really know why. Many small rivers have dried up altogether. And the water table keeps dropping,' he said. In Taiyuan, over-extraction has caused the aquifers to drop more than 100 metres in some places, leading to severe subsidence. The project has taken years to get off the ground because of complicated wrangling in Beijing, which also wanted water and planned to divert some from the Yellow River basin to satisfy its needs. In the end, Shanxi had to shoulder the main responsibility for the project, not the central government. The Fen River, which Mr Liu recalls skating on as a small child, barely exists, even during the summer when most of the rain falls. In May, there was just a trickle of stagnant industrial waste between its huge banks. In fact, wherever you go in Shanxi there are no flowing rivers, just sandy river beds. And the same is true for Beijing, Hebei and most of the North China Plain. Senior Chinese leaders are now telling Western diplomats they rank water shortages above state-owned enterprise reform or anything else as the most serious crisis facing China. More than half of China's 600 cities now suffer water shortages. The water table under the North China Plain is falling 1.5 metres per year, but demand is going to grow steadily for at least another 30 years. 'Pumping is going on at double the recharge rate,' says Lester Brown of the Worldwatch Institute. Mr Liu says the drought began more than 30 years ago, with less and less rain falling each year on the 600,000 square kilometre Loess Plateau. Engineers first began studying the feasibility of diverting Yellow River water in 1972. Since then the crisis has deepened, with water flows in the upper Fen basin dropping by 75 per cent in the last 20 years. 'The reasons are highly complicated, but this is largely a man-made problem. Logging during the Great Leap Forward and the Cultural Revolution destroyed the forests in the upper reaches of most tributaries,' explains Jing Ai, an expert based in Zhengzhou. The disappearance of tributaries such as the Fen River risk bringing the Yellow River to the point of extinction. Since 1985 it has been dry every year, and last year, the worst on record, China's second-longest river flowed for only three months along its lower reaches. 'Rain from the heavens fills the Yellow River, which then surges forward and empties into a sea of no return,' wrote the poet Li Bai 1,000 years ago. To make sure of that rain, Qinghai province, the source of the Yellow River, has even started expensive cloud-seeding programmes. The battle to control the Yellow River's water now reaches along its entire 5,000km. Water use in the upper reaches has tripled in the past 30 years, and altogether 3,380 reservoirs have been built in the Yellow River basin, which can hold 90 per cent of its natural water resources. The dams and reservoirs, built at great cost, have become so short of water that even the biggest hydropower project at Longyangxia cannot generate much electricity. When Shanxi's water diversion project begins operating in July 2002, it will only make things worse. It will have a capacity to divert 1.2 billion cubic metres a year, mostly in the key autumn months. Mr Fan denies this will have much impact, because the average river flow at the dam site is 20 billion cubic metres a year. Furthermore, he says, for years Shanxi has been unable to make use of its share of water resources. 'Even in the year 2001 we will still be only using three quarters of our quota,' Mr Fan claims. Yet this is a view not shared by some. 'When we made the original distribution plan, it was based on average water volumes. When this drops, as in the last few years, and the up-stream provinces grab their share, then it means the river just dries up,' explains Professor Hu Yisan at the Yellow River Conservancy Bureau. Last year, Shandong claimed water shortages cost it US$1.6 billion and left 3.6 million without sufficient drinking water. Its Sheng Li oil fields struggled to find the water needed to keep vital oil production flowing. The drought finally forced the Yellow River Water Conservancy Commission to announce a new and stricter water plan last month, better tailored to the declining flows. Yet inter-provincial wrangling will not end with this and is bound to worsen. Beijing must eventually introduce a more rational water-pricing system for the whole country. Meanwhile, up-stream provinces like Ningxia and Inner Mongolia are still pushing ahead to divert more water from the Yellow River. Hohhot needs more water for its industrial base. Shandong wants the water for its farmers, who grow a fifth of China's corn and complain Inner Mongolia's grain farmers consume 50 per cent more water. Shanxi farmers, who are poor already and earn a third of what urban workers bring home, have been squeezed by shortages for some time. Most crops grown here are only getting half the water they need, and soon water prices will go up steeply. The province raised prices from one fen (about one HK cent) a tonne to one jiao (10 fen) for farmers, but industry is being charged two yuan (about HK$1.87) a tonne. Already some farmers are selling their water rights to industry. 'Agriculture just cannot compete with demand from industry. The same amount of water produces 70 times as much revenue,' Mr Brown points out. Shanxi, where 80 per cent of its 30 million people depend on agriculture, is now sending people to Israel to study its agricultural techniques of using water carefully. Yet some fear that in the end Shanxi might face a situation where irrigated agriculture declines and more and more peasants depend on the heavens to water their crops. 'I am worried about Wanjiazhai. Afterwards, the cost of water will go up tenfold. And even the state will lose a lot of money, because people won't use the water,' Mr Jing said. For years, China has delayed raising water prices and privatising the water industry. Earlier this year, the Guangming Daily lamented that Yellow River is still so incredibly cheap that '1,000 tonnes costs less than a bottle of mineral water'. This means, the paper said, that 98 per cent of state-owned water projects lose money. Losses are so high that, as a proportion of capital investment, water projects have dropped from 6.7 per cent to just 2.2 per cent. Even worse, China is still far from revising its Water Law which would clarify ownership, a first step to an economical water industry. As a result, Shanxi suffers water shortages but factories spew out untreated waste water. A Worldwatch Report said that rice in Shanxi has been found to contain excessive levels of chromium and lead, while its cabbages are grown laced with cadmium. 'The Yellow River is now so loaded with heavy metals and other toxins that it is unfit even for irrigation, much less for human consumption,' says Mr Brown. The World Bank Wanjiazhai project includes investment in treatment plants which will help Taiyuan achieve a goal of 100 per cent waste-water treatment by 2010. Shanxi may also have to follow neighbouring Shaanxi, which is successfully trying to end the bureaucratic muddle by putting all water management under one roof. Co-ordination elsewhere is made impossible because the Ministry of Construction supervises urban water supplies, the Ministry of Land Resources underground water and the Ministry of Public Health the quality of drinking water. No ministry regulates the rural enterprises which are responsible for polluting upstream tributaries, except the National Environmental Protection Agency, which is powerless to enforce its will. At the same time, China is still contemplating the country's most ambitious project to relieve water shortages by diverting water from the Yangtze to the north. Momentum for the project, which could cost $US26 billion, is building up. China must help the peasants of the Yellow River valley, where 130 million live, and keep them employed in agriculture, both to meet its grain needs and to prevent migration. 'China's water scarcity could soon become the world's grain scarcity,' Mr Brown warns, and points to a United States National Intelligence Council Report which predicts China will need to import 175 million tones of grain by 2025 because of water shortages. Mr Brown says the north-south water diversion project will not provide the answer, because diverting 20 billion cubic metres is only the equivalent, he points out, of importing 20 million tonnes of grain. Yet in Shanxi, engineers think they are leading the way. 'The scale is smaller, of course, but this is how it could be done,' Mr Fan said, gesturing to the huge work in progress.