Journal of Environmental Management 90 (2009) 31853196

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Journal of Environmental Management

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Review

Chinas water scarcity

Yong Jiang*
Department of Agricultural, Food, and Resource Economics, Michigan State University, 85 Agriculture Hall, East Lansing, MI 48824, USA

a r t i c l e i n f o
Article history: Received 6 May 2008 Received in revised form 9 March 2009 Accepted 16 April 2009 Available online 17 June 2009 Keywords: Water resources Scarcity Pollution China Management

a b s t r a c t
China has been facing increasingly severe water scarcity, especially in the northern part of the country. Chinas water scarcity is characterized by insufcient local water resources as well as reduced water quality due to increasing pollution, both of which have caused serious impacts on society and the environment. Three factors contribute to Chinas water scarcity: uneven spatial distribution of water resources; rapid economic development and urbanization with a large and growing population; and poor water resource management. While it is nearly impossible to adjust the rst two factors, improving water resource management represents a cost-effective option that can alleviate Chinas vulnerability to the issue. Improving water resource management is a long-term task requiring a holistic approach with constant effort. Water right institutions, market-based approaches, and capacity building should be the governments top priority to address the water scarcity issue. 2009 Elsevier Ltd. All rights reserved.

1. Introduction China has been facing increasingly severe water scarcity. With insufcient water resources to meet rising water consumption, over-withdrawal of both surface water and groundwater has occurred in many areas of northern and eastern China. Overexploiting water resources has led to serious environmental consequences, such as ground subsidence, salinity intrusion, and ecosystem deterioration (Liu and Yu, 2001; Han, 2003; Foster et al., 2004; Liu and Xia, 2004; Fan et al., 2006; Cai and Ringler, 2007; Xia et al., 2007). Meanwhile, poor water quality caused by pollution further exacerbates the lack of water availability in water-scarce areas (SEPA, 19912007; Zhu et al., 2001; Liu and Diamond, 2005; Li, 2006; CAS, 2007; WB, 2007a). Water shortages and poor water quality are interacting with each other and threatening Chinas food security, economic development, and quality of life. The Chinese government is aware of the water scarcity problem and started reforming its water resource management in the late 1990s. Yet the problems of water shortages and degraded water quality are still severe. The complexity of Chinas water scarcity issue and its emerging serious effects on society and the environment raise many important questions. Is the water

* Tel.: 1 517 353 2981; fax: 1 517 432 1800. E-mail address: jyong@anr.msu.edu 0301-4797/$ see front matter 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.jenvman.2009.04.016

problem well understood? What has caused Chinas water scarcity? How could the Chinese government target its efforts to more effectively improve water resource management and to better address water resource issues? China is motivated to address the water problem as part of its policy initiative to promote scientic development consistent with a healthy environment (SC, 2006; MWR, 2007b). Water resource management is a top priority in the governments policy agenda (SC, 2006). As China struggles to develop effective approaches to alleviate water shortages, a clear understanding of the water scarcity issue is critically important. Chinas water resource issues have attracted extensive worldwide attention and have been covered by major media outlets such as the New York Times and the Economist (Wong, 2007; Yardley, 2007; Economist, 2009). Chinas water shortage is of global concern because China and the rest of the world are increasingly connected, both economically and environmentally (Liu and Diamond, 2005). The water shortage could have a worldwide impact if Chinas ability to produce sufcient food to feed a large and growing population is restricted (Brown and Halweil, 1998; Tso, 2004; Cai and Ringler, 2007). Addressing the issue will benet global sustainable development, especially since water scarcity is threatening Chinas economic development and its sustainability. This paper is intended to provide an overview and synthesis of Chinas water scarcity by assembling updated, publically available data. It attempts to develop an understanding of existing water resource issues that are critical to Chinas sustainable development.

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Fig. 1. Map of major rivers and watersheds in China. The increasing darkness indicates a decreasing annual per capita water availability.

In section 2, the paper introduces and describes Chinas water scarcity in terms of water quantity and quality. The rst part of Section 2 summarizes the natural characteristics of Chinas water resources and their insufcient quantity indicated by water shortages, overexploitation of water resources, and the emerging environmental consequences due to water resource overexploitation. The second part of Section 2 focuses on the reduced quality of available water, which has intensied the shortage of available water. Section 3 analyzes the causes of the water scarcity, including water resource management issues that need to be addressed to promote sustainable use of water resources. Section 4 summarizes current policy initiatives and outlines challenges for future water resource management. The paper concludes with policy suggestions in section 5.

2. Chinas water resources and scarcity Chinas water resources are spatially distributed with temporal dynamics. While facing increasing water shortages, China also is experiencing water resource overexploitation and degraded water quality, resulting in serious environmental and socio-economic impacts.

surface water and groundwater. This volume ranks fth in the world behind Brazil, Russia, Canada, and Indonesia.1 The temporal dynamics of Chinas water resources are determined by precipitation. Approximately 98% of Chinas surface water is recharged by precipitation (MWR, 2004a). While creating the spatially uneven distribution of water resources, the spatiotemporal pattern of precipitation further reinforces the spatial distribution of water resources by introducing a spatially heterogeneous temporal variation. Affected by a strong monsoon climate, the annual average precipitation gradually decreases in a spatial gradient from more than 2000 mm at the southeastern coastline to usually less than 200 mm at the northwestern hinterlands (MWR, 2004a). The ratio of maximum to minimum annual precipitation recorded possibly exceeds 8 in northwestern China, but only ranges between 2 and 3 or less than 2 in southern and southwestern part (MWR, 2004a). In most areas of the country, precipitation within four consecutive months at maximum approximately accounts for 70% of annual precipitation (MWR, 2007b). This spatio-temporal pattern of precipitation leads to a serious risk of ooding as well as drought, especially in northern China. Runoffs of the Hai and Huai rivers fall to 70% of their averages every four years and to 50% every 20 years (Berkoff, 2003).

2.1. Water resources and spatio-temporal characteristics Chinas water resources are geographically divided into nine major river basins, including Yangtze, Yellow (Huang), Hai-Luan, Huai, Song-Liao, Pearl, Southeast, Southwest, and Northwest (Fig. 1). Accounting for inter-year variation, the average volume of internal renewable water resources in China is estimated to be approximately 2812 billion m3 per year, which includes both

2.2. Quantity-related water scarcity Quantity-related water scarcity is attributed to the shortfall in water resource volume to meet water needs. This relative

1 The total volume of water resources is the amount of a 10th frequency dry year over multiple years. The data are from the Food and Agricultural Organization (FAO) AQUASTAT database, retrieved in November 2007.

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quantitative insufciency of water resources is indicated by water shortages, water resource overexploitation, and the effect of water resource overexploitation on the environment. 2.2.1. Water shortages Since the 1980s, China has been facing water shortages of increasing magnitude and frequency for urban industry, domestic consumption, and irrigated agriculture (WB, 2002). In normal water years, among 662 cities, 300 will have insufcient water supplies and 110 will experience severe water shortages; 30 out of 32 metropolitan areas with populations of more than 1 million people struggle to meet water demands (Li, 2006). At current water supply levels, the total water shortage is estimated to be 3040 billion m3 per year and is even larger in dry years (MWR, 2007b). By 2050, Chinas total water decit could reach 400 billion m3 (roughly 80% of the current annual capacity of approximately 500 billion m3) (Tso, 2004). During 20012005, water shortages caused industrial losses of 1.62% of Chinas annual GDP (MWR, 2007b). Unless measures are taken to reduce demand and augment supply, the total water shortage for the Yellow-Hai-Huai area in northern China was projected to be 56.5 billion m3 by 2050 (WB, 2002). 2.2.2. Water resource use and overexploitation North China has experienced heavy demand for water, and groundwater is an important source for water supply in this area. As demonstrated by Table 1, in 2006, North China got 63.3% of its water supply from surface water and 36.3% from groundwater. This accounted for 36.9% of surface water resources and 36.3% of groundwater resources. The average rate of water resource use ranged from 31.0% to 91.7% for basins in the north compared to rates of 1.719.5% in the south. In particular, the use rate of water resources in the Hai River basin reached to 91.7%. Although the scientic standard is case-specic on the percentage of water resources that should be reserved for environmental purposes, some studies indicate that 3040% of stream ows is a reasonable rate to maintain a healthy aquatic ecosystem (See Smakhtin et al., 2004; Tso, 2004). The up to 90% rate of water resource use in North China could increase the risk of negative environmental effects. 2.2.3. Reduced instream ow and degraded aquatic ecosystems Excessive water resource division reduces instream ows in many rivers and has caused negative impacts on aquatic

ecosystems. In the Hai River basin, 40%dabout 4000 kmdof water courses dried up and 194 natural lakes and depressions with a total area of 6.67 km2 disappeared (Wang et al., 2000). The discharge from the river to the ocean dwindled from an annual average of 24 billion m3 in the 1950s to 1 billion m3 in 2001 (Xia et al., 2007). The aquatic ecosystem has deteriorated and many estuarine species are now extinct (Xia et al., 2004). In the Yellow River, global ENSO events have caused a 51% decrease in river discharge to the sea since the 1950s and diverting water for human use further reduces stream ows and sediment discharge with more frequent ow cutoffs downstream for longer durations (Wang et al., 2006a; Fan et al., 2006). In particular, the lower reach of the Yellow River had no ow for 226 consecutive days from February 7 to December 23, 1997; the length of the main channel with no ow was 700 km from the downstream, a distance accounting for 90% of the river course in the lower reach (Liu and Xia, 2004; Fan et al., 2006; Wang and Jin, 2006). The Yellow River Delta is becoming more fragile and susceptible to natural hazards (Deng and Jin, 2000; Lin et al., 2001; Huang and Fan, 2004; Fan et al., 2006; Wang et al., 2006a). 2.2.4. Groundwater depletion A large volume of literature has recorded increasing groundwater depletion in North China over the last two decades (e.g., Chen, 1985; Liu and Wei, 1989; Lou, 1998; Wu et al., 1998; Chen and Xia, 1999; Liu and Yu, 2001; Xia and Chen, 2001). Since the beginning of the 1980s, regions that overexploit groundwater have increased from 56 to 164 and the total area subject to groundwater overexploitation has increased from 87,000 km2 to 180,000 km2 (MWR, 2007b). Seventy percent (or 90,000 km2) of the North China Plain has been affected by groundwater overextraction (Liu and Yu, 2001). In the western part of the 3-H basin, the groundwater table has been declining at an accelerating rate, increasing from 34 m in the 1950s to more than 20 m in the 1980s and to about 30 m in the 1990s (Liu and Xia, 2004). In the Hai River basin, groundwater withdrawal has exceeded the recharge rate, causing an average recharge decit of 4090 mm per year, which is equivalent to a continuous water table decline of 0.5 m per year (Foster et al., 2004). Most rural areas on the piedmont plain stretching onto the alluvial ood plain on the North China Plain have experienced water table declines of more than 20 m for shallow groundwater and more than 40 m for deep aquifers since 1960 (Foster et al., 2004). Greater declines have also been observed in many urban centers. In Beijing, groundwater tables have dropped by 100300 m (WB, 2001). 2.2.5. Seawater intrusion and ground subsidence Seawater intrusion and ground subsidence are common in many areas where groundwater is overexploited (Han, 2003). In coastal regions, falling groundwater tables can break the balance at the interface between freshwater and seawater and induce subsurface migration of seawater toward land. Seawater intrusion has occurred in 72 locations in Hebei, Shandong, and Liaoning provinces, covering a total area of 142 km2 in 1992 (WB, 2001). Falling groundwater tables also have caused ground subsidences in northern and eastern China. Cities such as Beijing, Tianjin, and Shanghai have been subject to ground subsidences of up to several meters (Shalizi, 2006). In addition, groundwater overexploitation has led to aquifer salinization, which is even more signicant than seawater intrusion in some areas (Foster et al., 2004). 2.3. Quality-related water scarcity Quality-related water scarcity is caused by poor water quality that does not support any economic use of water rather than insufcient quantity. China has been experiencing water quality

Table 1 Chinas water supply in 2006 and renewable water resources.a Region Water supply (%), 10 m Surface North Song-Liao Hai Huang Huai Northwest South Yangtz Pearl Southeast Southwest National
a 9 3

Water resource use rate,% Totalb 259.0 59.8 38.6 39.3 59.1 62.1 318.3 187.9 87.5 32.6 10.2 (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) Surface 36.9 19.8 46.5 38.8 56.7 45.3 13.5 18.9 17.8 12.3 1.7 17.4 Aquifer 36.3 43.5 95.1 33.7 43.5 10.8 2.4 3.3 3.8 1.8 0.2 12.9 Total 48.3 31.0 91.7 52.8 61.5 47.6 14.0 19.5 18.6 12.6 1.7 20.5

Aquifer 92.6 27.2 25.2 13.7 17.1 9.4 14.0 8.3 4.3 1.1 0.4 (35.7) (45.4) (65.3) (34.8) (28.9) (15.1) (4.4) (4.4) (4.9) (3.4) (3.5)

166.4 32.7 13.4 25.6 42.0 52.7 304.3 179.7 83.2 31.5 9.9

(63.3) (54.6) (34.7) (65.2) (71.1) (84.9) (95.6) (95.6) (95.1) (96.6) (96.5)

470.7 (81.5)

106.6 (18.5)

577.2 (100)

Water supply data are from MWR (2007a) for year 2006. Data on average annual renewable water resources are from UNESCAP (1997). b Total water supply does not include supply from other sources. Surface water and groundwater are interrelated, and therefore, the total amount of water resources may be smaller than the sum of surface water and groundwater.

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Proportion of Monitored Water Sections with Poor Water Quality (Grades IV, V, or V+)

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.18 1993 1995 1997 1999 2001 2003 2005 2007 0.39 0.39 0.48 0.44 0.44 0.38 0.42 0.62 0.58 0.59 0.63 0.7 0.71 0.6

degradation due to wastewater discharge coupled with insufcient treatment (Wu et al., 1999). Degraded water quality further intensies the quantitative insufciency of the naturally available freshwater, affecting Chinas socio-economic development. 2.3.1. Degrading water quality In China, water quality is broken into ve categories that can be described as good (Grades I, II, and III) or poor (Grades IV and V or V, which cannot support drinking and swimming). As shown by Fig. 2, Chinas general water quality trend is characterized by extended water sections of poor quality. Fig. 3 demonstrates the spatial difference in water quality trend across major river basins. In South China, 20% of the monitored water sections in the Yangtze and Pearl River basins have poor water quality (Fig. 3). In North China, all major river basins experience water quality degradation, and the percentage of monitored water sections ranked poor ranges from 50% in the Yellow River basin to 78% in the Hai River basin (Fig. 3). The spatial characteristics of water quality status reveal a challenging water resource management situation in North China where water shortages and degraded quality interact and reinforce the negative effects of each other.

0 1991

Year
Fig. 2. Trend of proportion of monitored water sections with poor water quality in China. Data source: SEPA (19912007).

Proportion of Monitored Water Sections with Poor Water Quality (Grades IV, V, or V+)

The Yangtze River Basin

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

Proportion of Monitored Water Sections with Poor Water Quality (Grades IV, V, or V+)

The Pearl River Basin

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
19

0.48 0.3 0.32 0.32 0.28 0.25 0.23 0.28 0.28 0.24

0.47 0.31 0.22 0.37

0.5 0.27 0.21 0.28 0.11

0.2

0.29 0.24

0.24 0.21 0.18

0.25 0.21

0.24

0.16

0.18

0.19

0.18

93

95

20 01 20 03 20 05 20 07

91

93

95

97

99

01

03

05 20
0.73

91

97

19

19

99

19

19

19

19

20

20

19

19

19

Year Proportion of Monitored Water Sections with Poor Water Quality (Grades IV, V, or V+) Proportion of Monitored Water Sections with Poor Water Quality (Grades IV, V, or V+)

Year

The Yellow River Basin

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
0.88 0.7 0.66 0.71 0.63 0.77 0.77 0.64 0.5 0.66

The Hai River Basin

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
19
0.91 0.74 0.72 0.7 0.5 0.59 0.5 0.44 0.41 0.41 0.86 0.78 0.78 0.86 0.75 0.78

0.65

0.67 0.69 0.6

0.67

0.29

Year Proportion of Monitored Water Sections with Poor Water Quality (Grades IV, V, or V+) The Huai River Basin
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
0.82 0.67 0.66 0.65 0.51 0.51 0.44 0.8 0.84 0.8 0.83

Year Proportion of Monitored Water Sections with Poor Water Quality (Grades IV, V, or V+)

The Song-Liao River Basin

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
19
0.92 0.78 0.76 0.7 0.73 0.82 0.75 0.82 0.71

0.72 0.74

0.78 0.81

0.74

20 0

0.71 0.67 0.6

20 01 20 03

20 05

07

99

05 20

91

93

95

97

19 91

19 93

19 95

19 97

19 99

01

20 0

20

19

19

19

19

Year

Year

Fig. 3. Trends of proportions of monitored water sections with poor water quality for major river basins in China. Data source: SEPA (19912007).

20

20

07

1 20 03 20 05 20 07
0.76 0.73

99

03

91

93

95

97

05

01

07

91

93

95

97

19

19

19

19

19

20

20

20

20

19

19

19

19

99

20

07

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China has a large number of lakes and reservoirs with a total freshwater capacity of about 863 billion m3 (Jin et al., 2005). The water quality of lakes and reservoirs traditionally is measured by trophic status and can be classied into oligotrophic, mesotrophic, eutrophic, and hypertrophic based on increasing levels of nutrients in the water. A moving from oligotrophic to hypertrophic indicates a transition from relatively unpolluted to highly polluted water. Chinas lakes and reservoirs are experiencing accelerated eutrophication and degraded water quality. Jin et al. (1995) found that most of the 34 lakes studied were of mesotrophic status in the 1970s; the percentage of eutrophic lakes increased from 5% to 55% between 1978 and 1987. Currently, 57.5% of the 40 main freshwater lakes in China have become eutrophic and hypertrophic (Table 2). According to the 2006 China Environment Bulletin (SEPA, 2007), of the 27 lakes of national priority for pollution control, only 8 (or 29%) met the standards for good water quality and 19 (or 70%) were ranked poor. The three major lakes including Tai, Chao, and Dianchi are the most polluted with water quality below Grade V. 2.3.2. Socio-economic impact Water scarcity due to poor water quality has occurred in northern and eastern China. Shanghai, located at the downstream of the Yangtze River and the Lake Tai basin, has its water polluted from both upstream and the local area. Zhejiang faces the same problem: water scarcity not because of a lack of water to use, but because poor quality renders water unusable. In May 2007, a sudden large algae bloom in Lake Tai polluted 70% of the local water supply in Wuxi in eastern China, affecting 2 million people. Poor water quality threatens water availability even in southern China where water resources are abundant. Zhu et al. (2002) estimated that in the Pearl River basin, pollution degraded water resources would reach 352 million m3 in 2010 and 537 million m3 in 2020. This amount of water could otherwise support 2.54 million and 3.68 million people in the basin each year, respectively.

With a lack of clean, usable water, households, industries, and agriculture were forced to cut back their water use. At the same time, the limited available water resources were threatened by pollution. From 2000 to 2003, as much as 25 billion m3 of water was not used because of pollution (WB, 2007a). About 47 billion m3 of the water that was used came from degraded supplies that did not meet the before-treatment quality standard (WB, 2007a), which was almost 10% of Chinas total water supply of 563.3 billion m3 in 2005 (NBSC, 2006). Degraded water quality has caused serious impacts on society. In 2003, economic losses attributed to poor water quality were at least 158 billion yuan or 1.16% of Chinas annual GDP (WB, 2007a). Fig. 4 shows the cancer mortality rates associated with poor water quality. The rates of stomach, liver, and bladder cancers are highest in rural areas and the mortality rates of liver and stomach cancers in China are well above the world averages (WB, 2007a). 3. Causes of water scarcity Many factors contribute to Chinas water scarcity. Naturally, the spatio-temporal distribution of water resources is inconsistent with socio-economic needs for water. This inconsistency could cause a conict between water supply and demand, and this conict is intensies by economic development, population growth, and urbanization. To make the situation worse, water resource management has been poor, increasing Chinas vulnerability with serious social and environmental consequences. 3.1. Natural characteristics of water resources inconsistent with water needs The spatial distribution of Chinas water resources is inconsistent with the local socio-economic needs for water. The majority of Chinas water resources are located in the southern part of the country, whereas the greatest need for water comes from northern and eastern China. As demonstrated by Table 3, the northern China accounts for 45.2% of the countrys total population but only has 19.1% of the countrys water resources. This spatially uneven distribution creates extremely low water availability on a per capita basis in many local areas to the north of the Yellow River. The Yellow (Huang)-Huai-Hai river basins (called the 3-H area) features major cities, including Beijing and Tianjin, and the volume of renewable water resources ranges from 314 m3 per capita per year (860 L per capita per day) in the Hai River basin to 672 m3 per capita per year (1841 L per capita per day) in the Yellow River basin

Table 2 Current trophic level of lakes and reservoirs in China.a Lakes Year Water quality parameter TP, mg/L Five major lakes Poyang Dongting Tai Hongze Chao Urban lakes Cibi (Dali) Xi (Hangzhou) Dong (Wuhan) Xuanwu (Nanjing) Gantang (Jiujiang) Nan (Changchun) Lu (Guangzhou) Xi (Huizhou) Haixihai (Dali) Reservoir Miyun Dahuofang Yuqiao Guanting Shanzai
a

Trophic state

TN, mg/L 0.862 0.89 3.24 1.906 2.96 Mesotrophiceutrophic Eutrophic Eutrophic Eutrophic Eutrophic

2000 2001 2001 2004 1999

0.102 0.336 0.126 0.103 0.193

35
Major cities

Mortanity Rate, 1/10 000

30 25 20 15 10 5 0

Medium/small cities Rural World average

2003 2003 2001 2003 2003 2003 2003 2003 2003

0.016 0.17 0.125 0.478 0.24 0.529 0.22 0.124 0.033

0.39 3.06 2.5 3.5 1.73 5.45 3.04 0.83 0.28

Mesotrophic Eutrophic Eutrophic Eutrophic Eutrophic Eutrophic Eutrophic Eutrophic Mesotrophic

1990 19881991 1999 2000 2001

0.018 0.06 0.14 0.047 0.05

0.115 1.09 2.5 2.92 0.27

Mesotrophic Mesotrophiceutrophic Eutrophic Eutrophic Mesotrophiceutrophic

Oesophagus cancer

Stomach cancer

Liver cancer

Bladder cancer

Cancer
Fig. 4. Mortality rates for diseases associated with water pollution in China. The world average mortality rates are for year 2000 and the China mortality rates are for year 2003. Source: WB (2007a).

Adapted from Jin et al. (1995), Jin (2003), and Jin et al. (2005).

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Y. Jiang / Journal of Environmental Management 90 (2009) 31853196 Table 4 Standards measuring water scarcity.a Water availability, m3 per capita per year <1700 <1000 <500
a

Table 3 Spatial distribution of Chinas water resources and other social variables.a Region Average annual renewable water resources, billion m3 (%) Surface water Ground water Totalb 592.4 119.6 133.9 198.8 110.6 29.5 694.7 428.3 171.0 74.5 20.9 Populationc, million (%) Per capita water resources, m3

Consequences Disruptive water shortage can frequently occur Severe water shortage can occur threatening food production and economic development Absolute water scarcity would result

North 450.7 (16.6) 255.1 (30.8) 535.8 (19.1) Song-Liao 165.3 (6.1) 62.5 (7.5) 192.8 (6.9) Hai-Luan 28.8 (1.1) 26.5 (3.2) 42.1 (1.5) Huai 74.1 (2.7) 39.3 (4.7) 96.1 (3.4) Huang 66.1 (2.4) 40.6 (4.9) 74.4 (2.6) Northwest 116.4 (4.3) 86.2 (10.4) 130.4 (4.6) South 2260.8 (83.4) 591.7 (69.3) 2276.6 (80.9) Yangtze 951.3 (35.1) 246.4 (29.7) 961.3 (34.2) Pearl 468.5 (17.3) 111.6 (13.5) 470.8 (16.7) Southeastern 255.7 (9.4) 61.3 (7.4) 259.2 (9.2) Southwestern 585.3 (21.6) 154.4 (18.6) 585.3 (20.8) National
a

(45.2) 904.1 (9.1) 1612.1 (10.2) 314.4 (15.2) 483.4 (8.4) 672.4 (2.3) 4417.2 (53.0) 3279.6 (32.7) 2244.7 (13.0) 2753.3 (5.7) 3481.3 (1.6) 28064.7 2145.1

Adopted from Wang and Jin (2006).

2711.5 (100) 828.8 (100) 2812.4 (100) 1311.1 (100)

Water resource data are from UNESCAP (1997); population data are from MWR (2007a). b The sum of water resources from surface and aquifer may exceed the total water resources by the amount of overlap between them, since surface water interacts with groundwater with the river base ow formed by groundwater and part of groundwater recharge coming from percolation of surface water. c The derived population data for watersheds may not sum up to the total population due to estimation error.

1.3 billion (NBSC, 2006), which accounted for 20% of the worlds total population (UNPD, 2006). Yet China only possesses 6.5% of the worlds total renewable freshwater resources. With its large population, Chinas water availability was estimated at 2151 m3 per capita per year (5893 L per capita per day), which was approximately 25% of the 8,484 m3 per capita per year (23248 L per capita per day) world average.2 Moreover, China also has undergone accelerated urbanization. Chinas urban population is more than doubled in less than 25 years and accounted for 43% of the total population in 2005 (NBSC, 2006). A large population and rapid urbanization apply great pressure on infrastructure development and public services such as drinking water supply and sewage treatment. 3.3. Poor water resource management

(Table 3). Using common water scarcity measurements (Table 4), the 3-H area is facing severe or even absolute water shortages. The low availability of water resources at the local level sets the stage for conict between nite water resources and water demand that can increase without limits. In recent years, climate change has underscored the problems that come from the uneven distribution of water resources as areas where water is scarce become drier. In the Yellow River basin, average temperatures have increased while precipitation and river runoff have decreased in the past 50 years (Fu et al., 2004; Liu and Xia, 2004; Yang et al., 2004). In the past 20 years, climate change has decreased water resources in northern China, with the annual ows of the Hai, Yellow, and Huai Rivers reduced 41%, 15%, and 15%, respectively (MWR, 2007b). In addition, the loss of glaciers and wetlands upstream from the Qinghai-Tibetan Plateau has decreased river runoffs by 917 billion m3 over the past 50 years and will lead to an annual loss of 143 billion m3 in the future (Wang et al., 2006b).

As water resources become limited or scarce relative to dramatically growing human needs, effective management of the limited available water resources becomes critical. Yet, Chinas water resource management has been poor, which increases the countrys vulnerability to increasingly severe water shortages. Economically, water resources are a common-pool resource. This means that people have no incentive to save or use water efciently, so effective management to deal with the externality of water use and market failure is needed. Over the past decades, Chinas water resource management, unfortunately, has been dominated by engineering projects to satisfy water demands rather than improving water use efciency. The institutional system of water resource management is fragmented and ineffective. Water policies largely fail to account for the economic nature of water resources in relation to their natural characteristics. 3.3.1. Fragmented institutional system of water resource management Chinas institutional system of water resource management involves multiple government agencies at different levels. Lack of effective coordination and cooperation among government agencies has led to fragmented water resource institutions which impede effective management of water resources. Take water quality management as an example. Ideally, water pollution control levels are determined by water quality standards for designated water uses. Socially-efcient water quality standards depend on the costs of water pollution control, including pollution treatment costs and the social costs of residue pollution, for designated water uses. So socially-efcient, cost-effective water resource management requires water pollution control integrated with water resource planning that designates the uses of water bodies. Chinas water

3.2. Rapid industrialization and urbanization associated with a large population While spatial distribution may cause water shortages in certain areas, rapid industrialization and urbanization coupled with a growing, large population further increases the risk of water scarcity by creating an ever-increasing demand for water. With its annual GDP growing at an average rate of 9.7% since 1990, China has one of the fastest growing economies in the world (NBSC, 2006). Chinas economic growth, however, is largely driven by industrialization with extensive but inefcient use of natural resources. In 2004, China contributed barely 4% of the global GDP, yet its world natural resource consumption was 15% for water, 28% for steel, 25% for aluminum, and 50% for cement (DAquino, 2005). Rapid industrialization has dramatically affected Chinas environment and natural resources, including water. At the same time, Chinas population is large and continues to grow. In 2005, Chinas population was estimated at approximately

2 World water resource data are from EarthTrends Environmental Information, Water Resources and Freshwater Ecosystems (Freshwater Resources 2005, http:// prelive.earthtrends.org/pdf_library/data_tables/wat2_2005.pdf, published by World Resources Institute, which is from FAO AQUASTAT 2004. World population data estimated for 2005 is from World Population Prospects: The 2006 Revision (UN Population Division, 2006).

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resource administration, however, is divided between these two sectors and each has separate administrative authorities. The State Environmental Protection Administration (SEPAP)3 mainly is responsible for controlling water pollution, while the Ministry of Water Resources (MWR) oversees water resources planning, including designating water functional zones for different uses and establishing corresponding water quality standards. With no coordination mechanism, this institutional separation not only impedes efcient water resource management but also increases the administrative transaction costs. Chinas river basin management, which involves government agencies at different administrative levels and across political boundaries, is a second example of fragmented water resource institutions. Integrated river basin management has been commonly accepted as an effective approach for managing water resources (Spulber and Sabbaghi, 1998). Although China has established basin commissions for major rivers and lakes to promote integrated management, these basin commissions have limited power to allocate water resources, coordinate water resource exploitation and conservation, and enforce water resource planning at the basin level. On the other hand, obscure delineation of authority and responsibilities among those government agencies involved in water resource management at different levels undermines the ability of basin commissions to regulate water resource exploitation within a sustainable framework. This fragmented river basin management has led directly to a water resource administration largely based on political boundaries rather than on watersheds, which amplies the issue of water resources as a common-pool resource by creating incentives for local myopic decision-makings on water resource exploitation. Fig. 5 details a case in the Yellow River basin where water withdrawals went beyond allocated water quotas. This water management failure eventually can be attributed to fragmented water resource institutions at the basin level. The river basin commissions under the MWR are responsible for watershed-wide water allocation among provinces. Yet, issuing permits for water withdrawal is left to local governments and their water resources bureaus that have no representation in the basin commissions. With weak basin commissions, there is no guarantee that water withdrawals are regulated within the framework of basin-level allocation of water resources. 3.3.2. Supply-driven water resources management and inefcient water use Chinas water resource management traditionally has been dominated by engineering projects to meet socio-economic needs for water. This supply-driven water resource management style ignores the economic nature of water resources and the potential conict between locally limited water availability and water demand that can dramatically increase. With economic expansion and population growth, this passive management with no restrictions on demand has led to inefcient industrial structure and water use, intensifying the conict between water supply and demand. China has developed an industrial structure that requires a large amount of water; a different industrial structure with lower water needs would have developed if measures had been taken to restrict demand. With no restrictions on demand, it is not surprising that Chinas water use efciency is low as compared to other industrialized countries. Indicators measuring water use efciency include marginal water consumption per one more unit of economic return, average economic return per unit of water consumption, or the

120

Volume, 108m3/year

105 90 75 60 45 30 15 0

water quota allocation water abstraction

Provinces
Fig. 5. Water quota allocation and water abstraction in year 1997 for the Yellow River basin, China. Source: He and Chen (2001).

ratio of actual water consumption to diverted amount. In 2003, Chinas water use per 10,000 GDP and per 10,000 industry-added value were 4.5 and 510 times the levels in developed countries, respectively; Chinas average recycling rate of industrial water use was estimated to be 4050%, compared to 80% in developed countries (CAS, 2007). In agriculture, while allocating a large volume of limited water resources to low value-added agriculture is economically inefcient, low efciency in agricultural water use also has occurred. As indicated by CAS (2007) and Zhang et al. (2007), the ratio of actual irrigation water consumption to the amount diverted in China is only 0.45, far below the level of 0.70.8 in developed countries. Other studies reported that only 50% of water from canals was delivered to the eld (Xu, 2001) and only about 40% of water withdrawal for agriculture was actually used on crops (Wang et al., 2005). The supply-driven water resource management also is responsible for the over-withdrawal of water resources. In recent years, northern China has seen an increasing exploitation of groundwater that may be attributed to the failure to regulate groundwater and to restrict demands (Wang et al., 2007). According to extensive surveys on rural groundwater use in northern China, Wang et al. (2007) found that less than 10% of the well owners surveyed obtained permits before drilling a well and only 5% of the villages believed their drilling decisions needed to consider spacing decisions. Water extraction was not charged in any village and there were no physical limits imposed on well owners (Wang et al., 2007). From 2000 to 2003, the average annual amount of groundwater withdrawn was estimated to be 24 billion m3, with 74% of that for agricultural use (WB, 2007a). 3.3.3. Underdeveloped water rights system A water rights system is the foundation of effective water resource management. Clearly dened, legally enforceable water rights can provide incentives to improve water use efciency. Unfortunately, Chinas institutional system of water rights has not been well developed and is not strictly enforced. Managing water resources based on water rights has not been successful. Much of the water use inefciency and the current water scarcity in China can be attributed to an underdeveloped system of water rights. In China, the State owns water resources except where water in local ponds is owned by the local collectives that constructed the ponds. On behalf of the State, the MWR manages water resource exploitation by delegating management to river basin commissions and local government bureaus. In 1988, China enacted its rst water law and established a permit system to regulate water withdrawal. Regarded as dening the right to use water, the permit system is

3 The SEPA was changed to the Ministry of Environmental Protection (MEP) in 2008.

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mainly for surface water and is far from being complete. Lack of clear delineation of jurisdictional control over water impedes the development of a water rights system and its effective administration. Agriculture is the largest water use sector, accounting for about 70% of Chinas annual water consumption. Well dened farmers water rights could facilitate government efforts to improve water use efciency and mitigate water scarcity. Yet, farmers water rights are largely unclear. For example, an important component of water rights is the amount of water that one is entitled to use. Lack of volumetric metering of water use at the farm level makes the water rights of individual farmers unclear. Moreover, during water shortages, farmers irrigation demands are often forced to yield to domestic or industrial use without compensation. This implies unclearly dened water rights, if any water rights at all. In addition, decisions about irrigation water delivery, including volume and timing, are largely made by irrigation districts rather than farmers. With an irrigation water charge tied to the acreage of irrigated land rather than actual water consumption, farmers have no incentives to save water and use it efciently. Since 2000, China has been moving toward strengthening water rights development and administration, including revising the water law and issuing policy guidance. Water rights, however, are still incomplete by modern standards (FAO, 2001). Systems have not been established to manage the three components of water rights: the amounts that can be withdrawn, transferred, and must be returned with certain quality. Legal delineation is unclear on the rights and responsibilities associated with a water withdrawal permit. Rules and methods on water allocation are still incomplete. Allocating water to establish initial water rights has not been completed. Not all water uses are measured and managed by permits. No coordination mechanism exists within basins to ensure that water withdrawal permits are consistent with water allocation. Although water rights trading has been proposed to promote efcient water resources allocation, the actual management still largely depends on administrative command and control. With underdeveloped water rights, it is difcult to regulate water use within a sustainable framework. China recently launched pilot projects in local areas to explore water rights management. A good example is a MWR project in Zhangye, Gansu to examine building a water-saving society with tradable water quotas. This project has exposed barriers to water rights trading, largely due to insufcient market institutions and policies (Zhang, 2007). All the pilot projects show that farmers do respond to incentives, implying that much of the inefcient use of water can be attributed to the current water resource institutions and policies failure to consider farmers incentives. 3.3.4. Inadequate water pricing Water pricing is an important policy instrument that can provide incentives for water saving and enhancing water use efciency, although it alone may not resolve water resource issues (Molle and Berkoff, 2008). Theoretically, market-determined prices can balance water demand and supply by reecting the value of scarce water. The balancing process is based on a premise that prices cover the full cost of water supply. Chinas water prices, however, historically have been set through a political top-down administration instead of through the market. Prices are purposely set low and are insufcient to cover the full cost of water supply, so they do not allow the market to balance demand and supply. It is estimated that current household expenditures for water only account for about 1.2% of disposable income. This percentage is lower than the 2% level that stimulates water-saving behavior and is much lower than the 4% in developed countries (Zhang et al., 2007). These low water prices provide little or no incentives to save water.

The 2002 Water Law introduced a cost recovery policy for water resource use. In the past few years, progress has been made in reforming water tariffs in many cities. Nonetheless, raising water prices has been slow because of concerns that access to water is a human right. The user charges for urban water supplies and wastewater treatment still do not fully cover all operating and investment costs. In Xian, for instance, households pay 1.6 yuan/m3 for water, while the full cost is 5 yuan/m3 (OECD, 2007). Charges for sewage treatment either have not been implemented, or are very low. Insufcient water tariffs have led to slow infrastructure development and poor services and maintenance. In urban areas, the number of water leaks is among the highest in the world. In agriculture, volumetric pricing of irrigation water use is underdeveloped although it is Chinas policy that water use charges should be based on the actual amount of water consumption. Since Chinas farms are characterized by small size and fragmentation, accurately measuring water use at the farm level to implement volumetric pricing is difcult (Huang et al., 2009). While there may be areas where irrigation charges reect actual water consumption at the village level, irrigation charges for individual farms in many rural areas still are based on the number of acres irrigated rather than the actual amount of water used for irrigation (Lohmar et al., 2007). With the irrigation charges being sunk costs, farmers have no incentive to save water and improve irrigation efciency. This may explain the low adaption rate (<20%) of water-saving technologies such as plastic sheeting, sprinkler system, drip irrigation, and other efcient, less capital- and energy-intensive techniques in water strapped northern China (Yang et al., 2003; Deng et al., 2006; Blanke et al., 2007; Huang et al., 2009). On one hand, it is economically inefcient to allocate a large amount of scarce water to low value-added agriculture; on the other hand, irrigation water use is not sufciently constrained by water prices to improve efciency. In addition, since water prices rarely reect the full cost of supplying water, including operation and maintenance costs plus overhaul and replacement costs for water delivery systems, lack of maintenance is common for irrigation infrastructure, further increasing insufcient water use. 3.3.5. Insufcient investment in environmental protection and weak pollution control Water shortages due to poor water quality can be attributed to insufcient investment in environmental protection and weak pollution control. In the past three decades, investments in environmental protection accounted for only 0.68%, 0.81%, and 1.19% of Chinas GDP, respectively, which are insufcient to achieve planned levels (WB, 2007b). In the next ve years (20062010), investment in environmental protection is slated to increase by 85% compared to previous levels but that is still lower than investments in ood control, soil conservation, and water resource allocation (Ma et al., 2006). With insufcient funding, the development of urban sewage treatment facilities, including sewer networks, has been slow, especially in small cities and established towns. According to a 2005 survey by the Ministry of Urban Construction, 278 out of 661 major cities did not build sewage treatment plants (CAS, 2007). In 2003, sewage treatment rates ranged from 43% for cities with more than 2 million people to 16% for cities with populations of less than 200,000 (NBSC, 2004). Lagging sewage system development has led to large amounts of untreated wastewater being dumped directly into the environment, which may explain why pollution control targets, such as reducing COD discharge by 10% by 2005, have not been met. Due to a lack of funding and weak regulation, water pollution in China is increasing and pollution sources are becoming more diverse. As demonstrated by Fig. 6, after declining form 1995 to 2000, industrial wastewater discharge has been increasing since

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Chemical Oxygen Demand (COD) Discharge (million ton)

2000. Although the proportion of wastewater that meets discharge regulation standard increased from 66.7% in 1999 to 91.2% in 2005 (SEPA, 19952006), untreated wastewater from town or village plants still may be dumped directly into the water system.4 After a steady decline since 2001, the industrial COD discharge increased again in 2005 despite wastewater treatment rates that increased from 85.2% in 2001 to 91.2% in 2005 (NBSC, 2006). A 2006 report by the World Bank provides a detailed analysis of the characteristics of industrial wastewater pollution (WB, 2006). Domestic sewage discharge is increasing more rapidly than industrial wastewater discharge. As demonstrated by Fig. 6, domestic sewage discharge has surpassed industrial discharge in terms of volume since 1999. In contrast to the decrease in industrial COD discharge, domestic COD discharge has been increasing (Fig. 6). While NH3-N contributions from both industrial and domestic sources have increased, domestic sources contribute almost twice as much as industry (Fig. 6). Agricultural non-point source pollution is considered another major pollution source that lacks control in China (Ongley, 2004; Wang, 2006). Increased fertilizer application and livestock waste have contributed large amounts of nutrients to downstream water bodies (Liu and Qiu, 2007). Combined with industrial and domestic wastewater, nutrient loads from agricultural runoffs are a major reason for the accelerated eutrophication of major lakes in China. Total nitrogen non-point source contributions for Lake Tai, Dianchi, and Lake Chao were estimated at 59%, 33%, and 63%, respectively; and total phosphate non-point source contributions were 30%, 41%, and 73%, respectively (Li et al., 2001). 3.3.6. Other policy failures In addition to the issues mentioned above, policies are not well integrated with each other and may exacerbate water resource issues. Many policies, including urban planning, industrial development policy, agricultural policy, etc., can have indirect effects on water resources. If these potential effects are not accounted for, policy outcomes will likely be inconsistent with the carrying capacities of local water systems. The present discrepancy in the distribution of socio-economic development and water resources is a typical example of policy failure to consider water resources.

60

Wastewater Discharge (billion m3)

50 40 30 20 10 0 1990 1992 1994 1996 1998 2000 2002 2004 2006

Year
20 18 16 14 12 10 8 6 4 2 0 1990 1992 1994 1996 1998 2000 2002 2004 2006

Year
1.6 1.4

NH3-N Discharge (million ton)

1.2 1 0.8 0.6 0.4 0.2 0 2001 2002 2003 2004 2005 2006

4. Government actions and challenges in the future The Chinese government recognizes the water resource issues and has been taking steps to promote sustainable water use (see Yang and Pang, 2006). China has set up a series of policy goals and priorities for water resource management in its 11th Five-Year Plan (20062010) for Social and Economic Development (FYPWRD) that determines scientic development and harmonious society as the general goals and guiding principles (SC, 2006). The State Council of the Chinese Government has established policy objectives for water resource management, including strengthening river basin management, protecting drinking water sources, combating transboundary water pollution, enhancing water saving in agriculture, and increasing the treatment rate of urban sewage by 2010 (SC, 2006). The 11th Five-Year Plan for Water Resources Development (FYPWRD) includes action plans and methods for implementation

Year
Total Industrial Industrial (County and Above Industrial Enterprise) Industrial (Township and Village Industrial Enterprise) Domestic
Fig. 6. Trend of wastewater, chemical oxygen demand (COD), NH3-N discharges in China. Data source: SEPA (19912007) and SEPA (19952006).

4 China Environmental Statistics Yearbooks (SEPA, 19952006) indicate an increasing rate of industrial wastewater discharge that meets the discharge standard for industrial enterprises at the county level or above for the period of 19952000. Since 2001, China Environment Statistical Yearbooks no longer list industrial wastewater discharges by industrial ownership type, and consequently, the range of wastewater discharge statistics is unclear.

(MWR, 2007b) and reects a strategic shift toward sustainable water resource development, including expediting water allocation, developing water rights systems, implementing quota and demandside management, and improving water use efciency and benets. As it reforms traditional water resource administration, China also is actively investing in projects to augment the water supply (MWR, 2007c). The most prominent example is the $62 billion South-to-North Water Transfer Project. Intended to provide water mainly for domestic and industrial uses in the arid north, this project will divert up to 45 billion m3 of water per yeardan amount

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Fig. 7. Sketch map of the South-to-North Water Transfer Project of China. Source: Berkoff (2003) adapted from MWR (1995).

roughly equivalent to the annual volume of the Yellow River in a normal yeardfrom the lower (eastern route), middle (middle route), and upper reaches (western route) of the Yangtze River in southern China by 2050 (Berkoff, 2003; Zhu, 2006) (Fig. 7). Both the eastern and middle routes are under construction and are expected to be completed by 2008 and 2014, respectively. Nonetheless, many management issues still exist. As acknowledged by the 11th NFYPWRD, these issues include: (1) lagging water resource management reforms; (2) lack of an integrated, efcient, and effective institutional system; (3) weak water resource management, including planning, policy design, monitoring, and regulation enforcement; (4) underdeveloped water rights system; (5) slow establishment of water markets; (6) overemphasis on engineering projects compared to management approaches, and (7) the lack of a stable nancing mechanism for environmental investment (MWR, 2007b). Rapid economic development with a large, growing population and urbanization represents a more serious challenge in the future. By 2020, Chinas population will pass 1.4 billion (UNPD, 2006), which will reduce available water to less than 2008 m3 per capita per year (or 5501 L per capita per day). Although still greater than the upper

bound of water stress at 1700 m3 per capita per year (or 4658 L per capita per day) (Johnson et al., 2001), available water levels can be extremely low at local areas such as the 3-H basin. Meanwhile, urbanization will increase urban water use and sewage discharge, which will create challenges because of reduced water resources. China also will need to balance expanding agricultural water use (to support food security and self-sufciency) with increasing demands for water in both domestic and industrial sectors, especially in the water-scarce north. As demonstrated by Table 5, northern China will see a higher increase in total water use than the south. In northern China, industrial and domestic water use will increase by 50% and 35%, respectively, compared to a 13% increase in agriculture. Given that agriculture consumes the largest amount of water, the projected increase in the agricultural sector is still remarkable although not as high as in the domestic and industrial sectors. While northern China will face more serious challenges in managing water resources, the projection implies that: 1) demandside management is essential to mitigate Chinas vulnerability to water scarcity; 2) improving water use efciency in agriculture may reduce water use and offset increasing demands for water in domestic and industrial sectors; 3) strengthening and enhancing industrial and domestic wastewater treatment with increasing water use is critically important to protect scarce clean water.

Table 5 Current and projected water use by sectors and spatial scales.a Year Water use by sectors, billion m3 (%) Domestic Country level 2005 2030 Percentage increase North 2005 2030 Percentage increase South 2005 2030 Percentage increase
a

Total, billion m3

5. Conclusion and suggestions China has been facing increasingly severe water scarcity, especially in the arid northern part of the country. Chinas water scarcity is characterized by insufcient quantities of water as well as poor water quality, both of which have dramatic effects on society and the environment. While rapid economic development combined with population growth and urbanization triggers the potential conict between water supply and demand, poor water resource management increases Chinas vulnerability and further intensies the problem. Even more serious water use challenges will arise in the future. Effective water resource management is a promising approach that can help alleviate Chinas vulnerability, especially when water scarcity tends to be more severe in the future. The natural condition of water resources represents the physical limit to which China

Industry 128.6 (23) 159.3 (24) 24%

Agriculture 357.8 (63) 395.2 (61) 10% 563.3 (100) 653.5 (100) 16%

76.9 (14) 99.0 (15) 29%

30.0 (12) 40.6 (13) 35%

33.4 (13) 50.1 (17) 50%

185.7 (75) 210.5 (70) 13%

249.1 (100) 301.2 (100) 21%

46.9 (15) 58.4 (17) 25%

95.2 (30) 109.2 (31) 15%

172.1 (55) 184.7 (52) 7%

314.2 (100) 352.3 (100) 12%

Data are from CAS (2007).

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needs to adapt in its development. While it is challenging or even impossible in the short run to adjust population distribution, the regional layout of urban systems, and the economic structure to conform to the physical circumstance of water resources, improving water resource management seems to be a cost-effective approach that deserves government efforts and holds promise for mitigating the effects of water shortages. Indeed, poor management is one of the most important factors responsible for current water resources issues. Addressing Chinas water scarcity requires a holistic, integrated, scientic approach with long-term, coordinated efforts. Given the complexity of the issue and policy challenges (Lasserre, 2003), this paper makes three recommendations that represent the current policy priority for China to address the water scarcity issue while improving water resource management. First, China needs to improve or establish institutional systems that register and regulate water withdrawal and use with clearly dened, legally enforceable water rights. These institutional systems may be dened by basins consistent with the hydrological cycle of water resources. The basin commissions, under the management of MWR, should be the leaders in authorizing and regulating water use within their basin boundaries. Issuing water withdrawal permits must be consistent with water resource planning and allocation. Water rights transfer based on initial water allocation may be allowed as long as it is registered with the basin commissions and has passed scientic assessment with no significant negative impact. A mechanism is needed to coordinate water rights administration across government agencies. Until water use is regulated and controlled by institutional systems, effective water resource management cannot possibly be achieved. Second, China needs to pay more attention to market-based approaches as opposed to passively and solely relying on engineering measures to resolve water shortages. Appropriate engineering projects are necessary to ensure water supplies for sustainable socio-economic development. Adopting engineering projects to meet water demands, however, may not be always socially efcient. The motivation for emphasizing market-based approaches rather than engineering measures is based on the economics of demand and supply and the resulting social welfare effect. Specically, both water demand and supply can adjust with water prices. With administratively controlled, often low prices, water demand is not restricted and may reach a level higher than that which can be supplied at the full-cost recovery for given water prices. In this case, pursuing engineering measures to meet the demand is not only socially inefcient but also maybe expensive or even impossible. Market-based approaches such as water pricing and water rights trading can cost-effectively balance the demand for water with the capacity of the water supply at a socially-efcient level. Market-determined prices not only cover the cost of water supply but also restrict water demand while providing incentives to save water. Allocating water rights and allowing water rights trading provide an economic approach to resolving water scarcity while mitigating the negative impact of water pricing, if any, on the poor. To facilitate and regulate the implementation of market-based approaches, the government needs to create rules and conditions. Third, research-based, data-driven decision support systems and capacity building need to play an important role in government efforts. Poor policy design and management not only waste limited resources but also exacerbate water resource issues. Decision support systems based on scientic research and reliable data is the foundation of effective water resource management and can inform good policy design. Currently, basin-level decision support systems that integrate the biophysical and hydrological processes of water resources and the socio-economic dynamics of water use are either

unavailable or not well-developed. The capacity to conduct rigorous policy-relevant analysis is weak. A unied information system with measurement and quality standards that maintains a record of water quality and quantity data has not been well developed. Lack of capacity to conduct scientic research impedes identifying local issues and the design of targeted policies. With its impressive economic development, China is able to pursue more sophisticated research with cutting-edge scientic methods. China can afford to invest in scientic research and developing and maintaining complete information systems. Of course, mechanisms are needed that can effectively and efciently convert and transfer scientic information to policy design and water resource management.

Acknowledgments This paper is written based on consulting work conducted for the World Bank Analytical Advisory Assistance (AAA) Program, Addressing Chinas Water Scarcity: From Analysis to Action. Dr. Jian Xie provided valuable advice and materials for the consulting work which help organize and prepare the paper. However, this paper does not necessarily reect the view of the World Bank.

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