Watershed Services in China

By Changjin Sun 8 March, 2013

China embarks on an ambitious market based programme for watershed conservation

223 million people affected by devastating floods in 1998 led govt to budget >RMB90billion in 6 programmes
RMB200 billion already invested and 30 million ha of forests planted to protect watersheds
Proposed charges for Shenzhen & Hong Kong to finance watershed conservation on the Dongjiang River

Rapid economic growth in China in the past three decades has been accompanied by serious ecological degradation.  In the summer of 1998, devastating floods occurred in the Yangtze, Songhua and Nenjiang watersheds. This affected a vast area of 21.2 million km2 and a population of 233 million people, costing 3,004 lives and some 2% of Chinese GDP.  This catastrophe prompted the State Council of China to initiate six key forestry programmes as the core of the “National Ecological Restoration Plan”, to prevent such mass flooding incidents in the future.  The six key forestry programmes sponsored by the central government have been the main driver for forest watershed conservation in China.

The six key forestry programmes are:

  • Natural Forest Protection Programme to implement a logging ban or logging quota reduction and natural forest protection in 17 provinces
  • Sloping Farming Lands Conversion Programme to convert sloping farming lands back into forests in 25 provinces and controlling soil erosion in an area of nearly 21 million hectares (340 million mu)
  • Three-North, Middle and Lower Reaches of the Yangtze Watersheds Shelterbelts Programme in 42.4% of Chinese land territory
  • Desertification Control in the vicinity of Beijing City to combat sand storms and to raise its forest and grass coverage from 6.7% to 21.4%
  • Wildlife Protection and Nature Reserve Programme to raise the coverage of nature reserves to 16.14% of national territory
  • Fast-Growing and High Yielding Forest Industrial Base Programme in Key Regions to boost commercial timber production.  This will  be implemented mainly by the corporate sector with subsidies from the government, as it involves more than just pure ecological restoration.

Designed to be financed mainly via public funding, these massive programmes represented ecological restoration efforts unprecedented in Chinese history.

Evolution of watershed environmental services

“…over RMB200 billion  has already been invested. Over 30 million ha of forests have been planted…”

In all these laws, the central government is assigned the highest level of authority and responsibility for the protection and restoration of watersheds. Local governments are required to be primarily responsible for ensuring the delivery of watershed services.  These laws propose rewarding citizens and corporations for their contributions and inputs to watershed conservation. They encourage the introduction of market mechanisms and require land development be guided by conservation.  The relevant clauses in these laws are nonetheless general statements that appear to be providing limited guidance for execution.

The six key forestry programmes have an impressive budget of over RMB900 billion  investment and are intended to cover 97% of China’s counties.  It is reported that over RMB200 billion has already been invested. Over 30 million ha of forests have been planted, resulting in a 2% increase in the forest coverage rate of programme regions.

Typically, forest-based watersheds generate five major benefits:

  • soil conservation
  • water conservation
  • biodiversity
  • landscape or recreation
  • carbon sequestration

All these benefits are of the public goods nature with strong positive externalities, and the beneficiaries can be local, downstream, national or even global. Policy makers and professionals in China have identified water rights trading and forest carbon credits trading as the two notable situations for introducing market-based mechanisms.

Nascent market based mechanisms for provision of watershed services

Market-based transaction systems are feasible in situations whereby property rights to a particular ecological service and its beneficiaries can be well defined and easily measurable.  Challenges facing this transition in China include a general lack of clear property rights arrangements for the forests and their derivatives (ecological benefits), the inertia of the command and control approach widely practiced for decades, and the difficulty of measuring a particular service.  There is currently significant academic work ongoing in China aimed at the appraisal and valuation of watershed environmental services.

Recognizing these challenges of administering these public payment programmes and the limitation of public financing, there have also been efforts in China to introduce market-based mechanisms to the provision of watershed services.  China is currently transitioning from political campaigning to economic incentives, from state provision to joint state-local provision, and from public provision to private contracting.

Dongjiang Case Study

A promising example involves the proposed Dongjiang River water supply compensation scheme.  The Dongjiang River is originated in Xuwu County of Jiangxi Province and flows into Guangdong Province.  Covering a total watershed of 35,340 km2, it is the major source of water supply for both Shenzhen City and Hong Kong.  Proposals are being made to charge downstream users in these two cities to finance watershed conservation in the upstream watersheds.


Possible new business line for the private sector

All these schemes can be developed into business opportunities for the private sector.  In fact, some have even gone quite far: in December 2010, the Qinghai Environment and Energy Trading House—Environmental Financing and Transaction Platform was set up in the remote province of Qinghai.  Even though it appears that few transactions have actually been facilitated, this entity intends to develop multiple businesses and has the ambition of promoting the establishment of long-term ecological compensation mechanisms in China.

For a more in-depth review of watershed payments market in China please read our review: Eco-Compensation – A Way Forward?

Changjin Sun
Author: Changjin Sun
Changjin Sun, Ph. D., University of Illinois at Urbana-Champaign, former Director of the Center of Ecological and Environmental Economics at the Chinese Academy of Social Sciences. He has over 20 years of employment experience in China in the fields of forestry, environment, natural resources management, security investment and timberland investment. He was a co-founder of a mission-oriented forestry company; provided consulting and advisory services to the World Bank, Asian Development Bank, Global Environment Facility, China Forestry Asset Exchange, CCICED of the State Council of China, and the Chinese ministries of commerce, environment and forestry; did research in China for major international research institutions and development aid agencies. Currently residing in Vancouver, consulting on security analysis, bioenergy and forestry.
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