2014 State of Environment Report Review

By China Water Risk 14 July, 2015

China's environmental quality was 'average' in 2014 but a closer look reveals mixed news (again) & monitoring issues

Groundwater quality still deteriorating (4th year); overall river quality stable but Yangtze & 2 others have worsened
Number & evaluation criteria (Grade I-V) of key lakes are comparable again; shows improvement over last 4 years
Southwest rivers worsened for first time; enforcement is being stepped up as polluters tamper with monitoring

The MEP 2014 State of Environment Report issued on 5 June 2015, says that the overall environmental quality was ‘average’, however, upon a closer look, we find mixed news (again):

  • Groundwater – quality continues to deteriorate for the fourth year running;
  • Key rivers – 28.8% are still unfit for human contact (Grade IV-V+); and
  • Key lakes & reservoirs – year-on-year pollution data became comparable again and shows improvement.

Groundwater still deteriorating over the past 4 years

Groundwater pollution remains severe with conditions worsening year-on-year over the past four years since 2011. In 2014 groundwater falling in the ‘bad’ to ‘very bad’ categories rose to 61.5% compared to 59.6% in 2013. Groundwater in the ‘very bad’ category also worsened and was at 16.1% in 2014, compared to 15.7% in 2013. Given these downward trends, can China meet the “Water Ten Plan” target of bringing down the ‘very bad’ category to 15% by 2020?

 Groundwater in ‘very bad’ rose from 15.7% to 16.1%

One thing for sure is that it will be an uphill battle, and more action needs to be taken to control coal and agricultural water use & pollution (more in “Groundwater Under Pressure”).

2014 Overall Groundwater Quality

Rivers – Overall water quality stable but the Yangtze, Huai and Liao have deteriorated

The overall water quality in river basins remained relatively stable in 2014:

  • Grades I-III water quality of China’s rivers worsened slightly by falling from 71.7% in 2013 to 71.2% in 2014 whilst Grade IV-V rose from 19.3% to 19.8%; and
  • Water that is not useable for industrial or agricultural use (Grade V+) water stayed flat.

Thus, water “unfit for human touch” rose from 28.3% in 2013 to 28.8% in 2014.
But the new Water Ten Plan aims to ensure over 70% of water in 7 key rivers to reach Grade III or above by 2020. Does this mean that we have already met this target? Or, with better monitoring, will more hidden pollution be exposed? (more here)

2014 Overall Quality of the Main River Basins

Mixed news for key rivers: the South fare better than the North

However, when we look into each of the key rivers, we can see that some have fared better than others. The breakdown of water quality of the 7 major river basins is as follows:

Water Quality of China 7 Major River Basins 2014

At a glance, the rivers in the South still fare better than the rivers in the North but a deeper dive into the river’s historic performance reveals mixed results. The good news first …

Significant improvement in the Yellow, Pearl & Songhua Rivers

Water quality of the Yellow, Pearl and Songhua Rivers has improved significantly with Grade V+ water falling by 49.7%, 33.9% and 19.3% of their 2013 levels, respectively. 12.9% of the Yellow, 3.7% of the Pearl and 4.6% of the Songhua remain not useable for industry and agriculture; these percentages are amongst the lowest out of the seven rivers. The improvement in the Yellow is considerable given that in 2009, 25% of the water was not useable for industry or agriculture.

Water Quality of Yellow Pearl Songhua updated

Mixed news for the Yangtze & Hai Rivers: Yangtze deteriorated but Huai improved

Although the Yangtze River remained flat for Grades V+ water quality at 3.1%, the lowest out of seven key rivers, the Grade I-III water fell from 89.4% to 88.1% and Grade IV-V water increased by 17.3%. The Hai River on the other hand saw no change of Grade I-III water whilst 1.6% of water improved from Grade V+ to Grade IV-V.

Water Quality of Yangtze and Hai

Huai & Liao Rivers gave back previous gains

Finally, the Huai and Liao Rivers have given back the previous year’s gains. The Huai is slightly worse off with a 5.4% fall in Grades I-III water and an increase of 7.5% in Grade IV-V water, whilst Grade V+ water had an increase of 27.4%; while, the Liao had a 8.1% fall in Grades I-III water and an increase of 3.7% in Grade IV-V water, whilst Grade V+ water had an even bigger increase of 35.2%.

Water Quality of Huai and Liao

Year-on-year data of key lakes & reservoirs are now “comparable” again & improving

As we pointed out last year, two changes happened in the 2013 data without explanation: the number of key lakes and reservoirs in 2013 was changed to 61, with one lake mysteriously ‘missing’ and the evaluation criteria were changed from Grades I-V+ to excellent, good, light pollution, medium pollution & heavy pollution.
This year, the number of key lakes and reservoirs is back to 62, with a clear list of names. Moreover, the previous evaluation criteria of Grades I-V+ is also back.
We can now compare with the historical data again. So, using Grades I-V+, we can compare the overall quality of China’s key lakes and reservoirs from 2011 to 2014. We can clearly see improvement of water quality over the past four years.

Number of key lakes and reservoirs back to 62; evaluation criteria comparable again

Water Quality of Key Lakes & Reservoirs Improved 2011-2014

2015 expected to see tougher crackdown on pollution for China’s water quality

As clearly shown above, China’s overall water quality is still worrying despite some improvements. In 2014, with the War on Water Pollution, we have seen a stronger crackdown from the government on pollution violations:

  • In total 73,160 environmental violations were investigated and related fines amounted to RMB3.17 billion;
  • 2,180 pollution-related criminal cases were handed to the police by local environmental protection departments in 2014 , 3x of that in 2013; and
  • 1,188 pollution-related criminal cases were brought to court, up by 7.8x from 2013.

Thanks to actions like these China is on track to meet the 2014 targets for COD, Sulphur Dioxide, Ammonia Nitrate and Nitrogen Oxide with reductions of 2.47%, 3.40%, 2.90% and 6.70% respectively. With the new Environmental Protection Law put into force in January 2015 and issuance of the new ‘Water Ten Plan’, we expect the crackdown on pollution to intensify. Indeed, it seems the case as in the first four months of 2015 (January – April), as reported by the MEP:

  • 160 factories faced daily fines that amounted to RMB112.3 million with the biggest fine at RMB15.8 million;
  • There were 1,186 cases of asset seizures and 698 cases of production suspension due to pollution violation; and
  • 429 pollution cases faced criminal charge.

With daily fines up to RMB112.3 mn so far, will 2015 be less grim?

With this tougher crackdown can we expect to see a less grim picture of China’s waterscape in the 2015 State of Environment Report? We think (and hope) so, but is meeting these targets enough to fundamentally improve overall water quality?

Still need more action in monitoring & pollution prevention for real improvement

As monitoring still faces big challenges the real state of environment remains questionable. There have been cases of polluting factories tampering with real-time monitoring equipment. The MEP exposed 7 such cases this year. In line with this crackdown, a couple major domestic monitoring equipment manufacturers made public statements promising no provision of software and hardware that enable data tampering.

The real state of environ remains questionable with cases of factories tampering with monitoring equipment

If the government plans to promote third-party monitoring services, monitoring credibility is key. The government will not only need to beef up its monitoring team, but also put more efforts in regulating the monitoring equipment market and standardization of monitoring measures.

Rivers in Southwest worsened for the first time in 2014

More actions are also needed in pollution prevention to make sure no the situation doesn’t worsen. As shown in the 2014 report, rivers in the Southwest showed signs of deterioration for the first time – Grade I-III fell from 100% to 93.6%, 3.2% in Grade V and 3.2% in Grade V+.
Moreover, rural environmental quality is also worrying as 2.3 million ha of farmland remains medium to heavily polluted, according to the latest survey report published by China Geological Survey of the MLR – a follow-up study after last year’s first-ever National Soil Pollution Survey jointly published by MEP & MLR. Such data clearly highlights the need for more action as well as more solutions and financing options – need both “carrot” & “stick”.

RMB 2.8bn set aside to tackle heavy metal pollution

The MEP recently set aside RMB 2.8 bn of the central budget to tackle heavy metal pollution in 30 selected pilot cities in 2015. Meanwhile, the Supreme Court will start public interest litigation for cases on ecological environment & resource protection and food safety in 13 selected pilot provinces.
Additionally, the government is encouraging cleaner industrial practices by launching the Environmental Protection Leaders Programme (jointly launched by MoF, NDRC, MIIT & MEP). It aims to identify leading companies with environmental friendly products & green supply chains. It will also help awarded companies to differentiate their products from others by using a certificate logo.

Not enough to just meet emission reduction targets if we are to fundamentally improve China’s water

So, to answer our previous question – if meeting emission reduction targets is enough to fundamentally improve China’s water quality-  we think not. And it seems the government thinks the same from the list of various programmes & actions above. For companies in polluting industries it is time to start thinking how to “leap” towards cleaner production and ultimately a circular economy.

Further Reading

  • China’s New Era of ESG – China’s economy is slowing with challenges arising from ESG factors. MSCI’s Chew & Wang on pollution fines, anti-corruption crackdowns & more from their report. Investors need to be prepared
  • Investors Can No Longer Ignore Water Risks – Ceres warns that water – or lack of it – is becoming a bigger financial issue for investors. Monika Freyman shares key points from their report on how to integrate water analysis into investment decisions
  • WaterHubs: Infrastructure for Urban Slums – 523 million or 61% of the urban slum population in developing countries is in Asia. Saurabh Saraf, WaterHubs CEO, outlines how WaterHubs can deliver holistic & fiscally viable water & sanitation solutions for slums
  •  Rural Drinking Water Solutions – 783 million people in rural areas still lack safe drinking water due to diseases coursing through waterways. Ling Li on why a traditional water distribution system is not necessarily the best answer & shares cheaper alternatives
  • Wastewater to Energy in Urumqi – In Urumqi, China water & energy demand has increased due to rapid growth. Veolia’s Nina Cambadelis on how they upgraded a wastewater treatment plant in Urumqi to produce biogas from the digestion of sewage sludge

Chinese water policies & pollution status

  • 2013 State of Environment Report Review – MEP’s 2013 State of Environment Report says the ‘overall environmental quality was average’ but a closer look reveals mixed news, whilst discrepancies found in sets of pollution data add uncertainty of the real state of the environment
  • 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 Ten: Comply or Else – China’s new Water Ten Plan sets tough action on pollution prevention & control. While this is good for the water sector, less obvious is who or which sectors will be impacted. China Water Risk’s Tan on why China is serious about its fast & furious pollution reforms to propel China to a new norm
  • China Water Risk’s 5 Trends for 2015 – As China moves to re-balance its economy and environment, Beijing will shepherd the nation towards water, food & energy security. For the Year of the Goat, it is better to be the surefooted goat than the sacrificial lamb so check out our top 5 trends in water for 2015
  • Pollution: It Doesn’t Pay to be Naughty – State Council wants to use the enforcement of law & regulation “to force the economy to transform and upgrade”. See how violation cost surges with daily fines, new standards & discharge permit trading in a bid to push China to go clean
  • China’s Economy: Linear to Circular – China is the 3rd country globally to enact polices to move towards a circular economy. See how & why China needs to make this transition; which industries are affected, what is the role of industrial parks?
China Water Risk
Author: China Water Risk
We believe regardless of whether we care for the environment that water risks affect us all – as investors, businesses and individuals. Water risks are fundamental to future decision making and growth patterns in global economies. Water scarcity has emerged as a critical sustainability issue for China's economy and since water powers the economy, we aim to highlight these risks inherent in each sector. In addition, we write about current trends in the global water industry, analyze changes occurring both regionally and globally, as well as providing explanations on the new technologies that are revolutionizing this industry.
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