OCTOBER 8 MUST have been a magical day in Taiyuan, the capital of China's northern Shanxi province. That was the day officials began delivering drinking water, diverted from the Yellow River through a 162km network of 25 canals, to a city where residents have adapted to shortages by storing water in pots and barrels. Taiyuan is home to water-intensive coal-fired electricity plants that power large parts of China, and it illustrates the water shortage problem that much of the country's northern areas face. The water diversion project is also a small-scale version of the 2,400km network of canals the government hopes to build throughout the country to address the north's problem. The shortfall could be as high as 70 billion cubic metres per year and demand could increase by another 25 billion cubic metres by 2050, according to a report from the US Embassy in Beijing. Water-intensive industries and fast-growing urban populations are two reasons for the shortages, and many experts are predicting the situation will only get worse. The Yellow River, which many northern cities and agricultural areas draw from, was once second in flow only to the famous Yangtze. In recent years, it has often completely dried up before reaching the East China Sea. The proposed solution is a 500 billion yuan (HK$470 billion) network of canals that will divert water from the middle reaches of the Yangtze River. The scope of the diversion project is expected to be several times larger than the damming of the Three Gorges on the Yangtze. Construction has begun on two major parts of the diversion project, but controversy continues, primarily because of its ambitious size and largely unknown environmental impact. Three routes have been mapped out and preparatory work has begun on the eastern and the central routes. The contracting process is also under way, as indicated by the Ministry of Water Resources' plans to release bidding terms to engineering companies and consultants in early December. Because they will run across different types of terrain, each route will have its own engineering and environmental challenges. The eastern route could have a positive impact on the environment if the necessary cleanup is carried out, the embassy report said. The route's canals will pass through polluted industrial areas, with water intake starting at Yangzhou in Jiangsu province. The central route will displace an estimated 250,000 people, and environmental disruption will be caused by the diversion of possibly one-third of the Han River's annual flow. The western route will present the greatest engineering challenge, requiring planners to tunnel through mountains and move water through areas prone to freezing. Because the area is unpopulated and has what some experts call fragile ecosystems, the environmental cost could be great, but has yet to be assessed. Serious planning for this route may not start until 2010 and it may never be built. Whatever the fate of the western route, it is clear the government intends to move ahead with the eastern and central diversions. Many experts agree that the water shortage is already severe and demand will only continue to grow as the north develops. The government counts the economic cost of the shortage at billions of yuan per year. The difficulty with the project will be balancing the economic, political and environmental aspects. As one observer put it, 'it's messing with mother nature, but people have to drink'. At the same time, officials in some areas are also pursuing other policies that include higher water pricing - in order to encourage conservation - and desalination of sea water. To the critics, alternatives are not being pursued aggressively enough. Financing of the project is also not entirely clear, although indications are that it will come out of China's treasury, and development banks will not get involved. But given that planning and construction could stretch out over the next five decades, there will be ample opportunity for debate, if not intervention. Anh-Thu Phan is Associate Editor of the Post's opinion pages Graphic: PANELGET