Why Should PRD Business Lead In Water Stewardship?

By Zhenzhen Xu, Feng Hu 18 May, 2017

CWR's Hu & AWS's Xu on why & how business can lead in balancing water & economic development in the PRD

The Pearl River Delta (PRD) has been an economic powerhouse, delivering about one tenth of China’s GDP and driving the development of neighbouring regions. In the meantime, it also faces many water challenges, which might get worse in the face of climate change (as we explored in “Pearl River Delta: 5 Water Must-Knows“).

None of these challenges can be tackled alone. Pollution and climate change could both exacerbate scarcity; while, water saving helps reduce the amount of wastewater being produced. The complexity of these challenges and their interlinkages mean that a more holistic approach is needed to address all of them. By doing this, it will also encourage more comprehensive and long-term solutions.

Greater economic cooperation beyond the PRD…

Closer economic ties are being built between the upstream and the downstream along the main tributaries of the Pearl River Basin. For instance, the ‘Pearl River-Xijiang Economic Belt’ links 3 PRD cities (Guangzhou, Foshan and Zhaoqing) with 8 cities along the Xijiang River, a western tributary of the Pearl.

This plan aims to promote wide cooperation from key infrastructure, river management, industry transformation to public services. It also encourages industries to transfer or expand from PRD to upstream cities, including both traditionally advantageous manufacturing that are already moving such as electronics, and strategic ones such as IT, chemicals, automobiles & batteries.

Meanwhile, an even more ambitious plan, the ‘Pan-Pearl River Delta’ (PPRD) corporation mechanism, has been initiated by 9 Provinces along the Pearl River (Guangdong, Fujian, Jiangxi, Hunan, Guangxi, Hainan, Sichuan, Guizhou and Yunnan) along with Hong Kong and Macau since 2004. Last year, this regional vision got upgraded to a national strategy to promote deeper cooperation in the PPRD. China hopes it will become a shining example for the grand plan of ‘Made in China 2025’.

Already, advanced manufacturing accounted for over half of industrial value added for Guangzhou, Shenzhen and Huizhou in 2015 (see left below chart).

…but mind the risk of pollution transfer to the upstream

However, one worry is: without coordinated actions in water management, such economic planning along the river basin could result in worsening environment in the upstream. The ‘Pollution Haven Hypothesis’ⁱ argues that tighter environmental regulation could lead to the moving of polluting industries to the upstream.
Indeed, a Chinese studyⁱⁱ highlighted such relocation across several industries, where hundreds of factories moved from PRD to non-PRD regions in Guangdong during 2000-2013. Without proper treatment, pollution in the upstream eventually will flow down the river and threaten water security and safety of downstream cities. Even within the PRD, as seen from right above chart, despite significant improving of wastewater treatment rates over 2005-2015, the situations still vary among cities: upstream PRD city Zhaoqing had a rate of 85% in 2015, compared to 96-98% in many other cities.

Similar experiences have been learned along another important and developed river basin – the Yangtze. Thus, cross-region economic planning and basin-wide water management must go hand in hand.

A greater manufacturing hub urges a closer look at hidden water risk 

If the Pearl River-Xijiang Economic Belt or the PPRD succeeds, the Pearl River Basin could play an even more dominant role across many manufacturing industries in the world. But, would that also mean much greater volumes of water use and wastewater discharge?

Take the electronics and IT industries for example: many products require necessary raw materials such as rare earths. As highlighted in CWR’s report ‘Rare Earths: Shades Of Grey – Can China continue to fuel our clean and smart future?’, half of China’s production quota of ‘Medium Rare Earth Elements’ (MREEs) is in Jiangxi province, especially Ganzhou city, which sits in the upstream of Dongjiang River, the eastern tributary of the Pearl.

This supply chain of rare earths adds an economic link on top of the physical one between the PRD and the upstream region of the Dongjiang River. However, it is not necessary all good news for the upstream.

Water concerns from rare earths are not just upstream but also downstream, with the Dongjiang River as a main water source for the PRD

Lack of environment protection measures and illegal mining, fueled by black markets, have led to a clean-up bill of at least RMB38 billion (USD5.6 billion) for the polluted soil and water in Ganzhou city alone. This is not to mention the downstream concern over water safety, as Dongjiang River is the main water source for many PRD cities as well as Hong Kong. But who will pay for the clean-up?
 

Policy already moving ahead: eco-compensation for pollution recovery 

Tougher penalties could help prevent illegal miners from wrongdoings. However, with national total environment related fines at RMB6.63 billion in 2016, it is clearly not enough for the clean-up in Ganzhou alone. Fortunately, new mechanisms are being promoted, including water rights trading and eco-compensation schemes between upstream and downstream to pay for pollution recovery costs.

Dongjiang River is one of six national ‘transboundary’ eco-compensation pilot regions. The two provincial governments, Guangdong and Jiangxi, signed an agreement in late October 2016, with both sides equally contributing RMB1 billion every year to ensure minimum Grade III water quality at the border.

In 2016, a provincial level working group was set up to coordinate actions in preventing & controlling water pollution in the region

Moreover, the Guangdong provincial government also indicated its plan to set up eco-compensation pilots along the Xijiang River and a few others by 2020.

In addition, better coordination among government departments has also been prioritised since the ‘Water Ten’. In 2016, a provincial level working group, led by top officials in both provincial and PRD city governments, was also set up to coordinate actions in preventing and controlling water pollution in the region. By the end of this year, a unified water quality monitoring network covering both freshwater and coastal environment is expected to be established.

Business to lead in water stewardship, for a win-win

We believe that businesses could play a bigger and more proactive role. According to The Economist, many businesses still consider the PRD as an important battle field in China. With serious water pollution in the delta areas, and increasing risk to source water security due to sea water intrusion along coastal areas and pollution pressure from upstream development (more on this here), it certainly makes sense for businesses to re-consider water as a strategic issue rather than a material input. This will help manage their water risks, and also ensure both the economic and environment future of the whole region.

“Working towards water stewardship … can ensure both the long-term business prosperity & regional water security”

No single business could succeed on its own. This is especially true for regions like the PRD, where many companies are located in various forms of industrial parks or special economic zones. Many sectors such as Chemical, Automotive and IT have largely benefited from such a cluster approach. Thus, water security of their surrounding regions matter. Working towards water stewardship in these industrial parks can ensure both the long-term business prosperity and regional water security.

“… collective actions from business on water stewardship are already happening outside the PRD”

Such collective actions from business on water stewardship are already happening outside the PRD. In Northern China, Alliance for Water Stewardship (AWS) is supporting Tianjin Economic-Technological Development Area (TEDA) to roll out its water stewardship system. The project is led by the TEDA government and supported by major water users within it (more here). The system aims to systematically tackle water related business risk and impact and encourage individual and collective efforts to improve water quality, quantity, ecosystem health and water governance.

As learned from Xijiang and Dongjiang, to achieve green development of the PRD, it will need a holistic approach to balance water and economic development. For complex and interconnected issues like water, collective actions from all the different regions and stakeholders may be the only good choice in the end.
Centred in the ‘Water Stewardship’ concept, the ideas of going beyond compliance and going beyond the fence line will facilitate cooperation along the business value chain and across various stakeholder groups at both industrial zones and catchment levels. For the PRD, opportunities are abound in transforming the mindsets of businesses and setting high standards for greenfield development in upstream areas.

In the following months, China Water Risk and Alliance for Water Stewardship will work together on a research brief on the PRD. It will provide a thorough overview of water challenges faced by the region and successful case studies from industry leaders in managing their water. We hope the brief will inspire more companies to move beyond compliance and become water stewards.
Stay tuned!

ⁱ Levinson, A. and Taylor, M. S. (2008), UNMASKING THE POLLUTION HAVEN EFFECT. International Economic Review, 49: 223–254. doi:10.1111/j.1468-2354.2008.00478.x

ⁱⁱ Shen, J., Wei, Y.D. and Yang, Z., 2017. The impact of environmental regulations on the location of pollution-intensive industries in China. Journal of Cleaner Production, 148, pp.785-794.

Further Reading

• Pearl River Delta: 5 Water Must-Knows – China’s Pearl River Delta generates 9% of GDP but water challenges lurk behind the dazzling economic success. Don’t know what these are? China Water Risk’s Feng Hu shares 5 water must-knows for the region
• Water Stewardship In Industrial Parks: TEDA Pilot – Industrial parks generate 22.5% of China’s GDP but can this last given water security and pollution concerns? An Chen, from the TEDA Eco Center & Zhenzhen Xu from the Alliance for Water Stewardship show how the Tianjin Economic-Technological Development Area leads in mitigating these risks
• Sharing Rivers: China & Kazakhstan – China and Kazakhstan share 24 rivers. Dr. Selina Ho from the National University of Singapore reviews their history of transboundary river co-operation and why this relationship is more advanced than China’s river relations with India & the Mekong states
• The Future Of Sustainability Reporting – With GRI replacing G4 guidelines with the first global sustainability reporting standard, we sat down with Global Reporting Initiative’s Ásthildur Hjaltadóttir to learn what this means & future trends in disclosure
• Corporate Water Targets: A New Approach – More and more companies view water as a business risk and water stewardship as a solution but current water stewardship metrics for on-ground projects are inadequate. Tien Shiao from the Pacific Institute shares a new approach on setting corporate water targets

Water policies

• Blue Skies & 13FYP Green Development – Air pollution and the battle on “blue skies” was by far the major environmental focus at China’s Two Sessions. Water and soil are no less important but yet softer and more general targets were set for them. See our review for the key takeaways
• 5 Trends For The Year Of The Rooster – The Rooster crows a new pecking order as China leads the global climate fight & drives structural changes at home. Stay on top with our 5 trends and make sure you are not walking on eggshells but laying golden eggs
• Beautiful China 2020: Water & The 13 FYP – China wants to exert tireless efforts to build a Beautiful China where the sky is blue, the land is green and the water runs clear. Find out what this means for water, the environment and the economy in the next five years in the upcoming 13th Five Year Plan
• 5 Regulatory Trends: From Enforcement To Finance – Since 2016, China’s environmental policy landscape has undergone a series of important changes. CWR’s Xu summarises key regulations & 5 trends you need to know, from greater enforcement to green finance

Water & economy

• Can We Build A Clean & Smart Future On Toxic Rare Earths? – Almost all smart, green & clean tech need rare earths to work, but mining & processing these are highly polluting. Lead author Liu of China Water Risk’s new report:  “Rare Earths: Shades Of Grey” explores this paradox. It is time to rethink our clean & smart future
• Water-nomics: Trade-offs Along The Yangtze – With significant economic, water use and pollution disparities along the Yangtze River, China Water Risk & the Foreign Economic Cooperation Office of the Ministry of Environmental Protection, publish a joint brief to explore strategies to find the right development mix. Check out some of the key findings in this review
• China Water-nomics – Will China’s economic development be hampered by limited water resources?  The very existence of the Three Red Lines signals that China can’t keep developing the way it has. Read on for why GDP will be capped at 5.7% given China’s water-nomics
• Made in China 2025: Are You On The List? – How does the new Made in China 2025 Action Plan fit with other ‘Future China’ plans? Are the ten industries in Made in China 2025 the same as the Circular Economy Ten? Find out why which list matters

Water stewardship

• Developing A Global Water Stewardship System – Alliance for Water Stewardship’s Zhenzhen Xu, Ma Xi & Michael Spencer introduce the first ever global water stewardship standard and share lessons learnt from Ecolab’s pilot at their Taicang China chemical plant
• Water Stewardship: The Impact To Date – A new report finds there has been little evolution from business -as-usual in regards to water management. What behaviours need to change? How can this be achieved? We sat down with report authors James Dalton from the International Union for Conservation of Nature (IUCN) & Peter Newborne from the Overseas Development Institute (ODI)
• Innovating Water Stewardship Through Business Ecosystems – William Sarni, water stewardship expert, on the need for innovation in water strategies in order to better position for 21st Century water risks. Sarni points to “business ecosystems” as the driver for this innovation and value creation
• Managing the World’s Liquid Asset – Water – Savvy investors now recognise water as a business risk yet there is still no agreed global standard & framework for sustainability reporting. Biswas, Tortajada & Chandler on why corporates & governments must do more to change the culture & mindset over the use of water