The War on Water Pollution

By Debra Tan 12 March, 2014

Premier Li Keqiang has just declared war on pollution, Tan examines stratagems, offensives & potential pitfalls

Priority is to protect water sources & soil from heavy metal industrial & nonpoint-source agricultural discharge
RMB2trn war chest but changes to the law & a Super MEP are a must to win this war
Tactical positing & offensives differ depending on domestic, industrial & agricultural wastewater discharge

“We will resolutely declare war against pollution as we declared war against poverty”

Premier Li Keqiang, NPC Meetings, 5 March 2014

With 80.9% of the people ‘deeply concerned’ about overall environmental conditions, it is no wonder that war is declared on pollution by Premier Li Keqiang last week at the National People’s Congress meetings in Beijing.
It’s not just concerns over the highly visible “orange” smog that has been lingering, 86.8% of those surveyed in the first-ever National Ecological Civilization Awareness Survey conducted by the MEP in February 2014 were also ‘highly concerned’ over drinking water and food safety.

Know your Enemy

The situation is bad. There is no doubt that China’s water sources, be it groundwater or from rivers need urgent protection from all excessive & untreated discharge. A Ministry of Land & Resources (MLR) survey said that over 70% of shallow & deep groundwater is severely polluted in the North China Plain where a significant portion of China’s farmlands lie. Also of the 655 cities in China, more than 400 rely on groundwater. As a result, the government has prioritised groundwater protection (more on this in Groundwater Crackdown”).

Groundwater pollution in agricultural croplands has also brought about other concerns such as soil contamination and food safety. There are worries about cadmium and chromium rice as a result of soil pollution from excessive levels of heavy metals discharged into wastewater.
Lu Guang - Family with Cancer

The image on the right by award-winning photographer Lu Guang, looks like a classic portrait of a village but in reality, every single person in this photograph has cancer. In fact there were more than 50 people in this village in Hebei who had cancer (more on location of cancer villages here).

Lu’s poignant depiction of the growth of industry and its impact on the people and environment of remote area in “China’s Requiem for Mountain & Waters” drew attention to the plight of rural areas. In 2013, ‘cancer villages’ were officially documented and this year, we see the government beefing up the ‘MEP war machine’ to deal with this (see Sharpen the Sword below).

Although industry is largely to blame for excessive heavy metal pollution, non-point source pollution from agriculture is the still largest contributor to water pollution. Both agricultural pollution from excessive fertiliser application and soil remediation will have to be addressed if the war on pollution is to be a success (see Tactical Positioning below).

Not surprising then, that Premier Li identified the following main “battlefields” in his work report: drinking water source protection, key watershed pollution control & recovery, soil pollution & recovery and treatment of nonpoint-source pollution.

“Some areas have serious air, water & soil pollutions … We will implement the “Clean Water Action Plan” to strengthen the protection of drinking water sources and promote treatment & control of pollutions in key watersheds. Implement soil remediation to treat nonpoint source pollution in agriculture”

Premier Li Keqiang, National People’s Congress, 5 March 2014

The government at the highest levels is acknowledging this publically. This is an important step in the war against pollution. In reality, the planning for “Pollution Wars” has already started with multiple stratagems in place (see Main Stratagems & Offensives below), but with the current ineffective system of monitoring & punishing pollution violators can any of these campaigns waged be successful?

Sharpen your Sword

Sharpening your sword would be a sensible thing to do before going to war. Other key ingredients in waging a successful war are: a big war chest, strong war machine, highly trained troops and correctly incentivized generals.

“key ingredients in waging a successful war are: a big war chest, strong war machine, highly trained troops and correctly incentivized generals”

Already, a total of RMB3.7 trillion (USD607 billion) has been set aside to tackle air and water pollution this year; RMB2 trillion (USD330 billion) of this will be dedicated to water pollution. A war chest equivalent to almost the size of Hong Kong’s GDP (2012 = USD375 billion) seems like a good start.

There is also much talk in the capital about strengthening the currently toothless ‘war machine’ that is the MEP. Passing the proposed changes in the Environmental Law to allow the MEP to levy unlimited and daily penalties on pollution violators would definitely strengthen its arsenal. Also, in cases where public interests are affected, violations will be deemed criminal under the new law and polluters will be prosecuted as such.

Proposed amendments to the law also included opening up civil litigation against polluters but this has been somewhat scuttled by recommendations to channel public litigation through various “approved bodies”. As such, the amended Environmental Law is in its 4th Draft. We had hoped that the law will be rubber-stamped this time round but no such luck (yet). Observers have commented that it is rare that it is still not passed but we still see a glimmer of hope that it will be passed this year given NPC Chairman Zhang Dejiang (ranks third in the all-powerful Politburo Standing Committee) various remarks in the NPC’s Standing Committee Work Report …

“We will revise the Environmental Protection Law and the Air Pollution Prevention and Control Law to improve environmental protection and management so that emissions of all pollutants are strictly supervised”.“[We will] enforce the strictest systems for protecting the environment by controlling pollution at the source, holding polluters accountable and ensuring that they compensate for the damage they cause”.

Zhang Dejiang, NPC Chairman, 9 March 2014

MEP Reform - Mountaintop to the OceanOther fundamental changes towards an effective ‘war machine’ involve the consolidation of currently dispersed and overlapping authority & responsibilities of monitoring and setting punishments across various ministries. This would result in the formation of a “Super MEP” which could effectively fight the war on pollution – both air and water would benefit. See our views on the whys and how of this potential ‘merger’ here in MEP Reform: Mountaintop to Ocean?”.
As for training troops and correctly incentivizing generals …

RMB211 million has been set aside last year from the Central Environmental Special Fund to not only train and educate MEP employees to better monitor discharge, but to design more effective standards which will be streamlined from 600 to 300.

“… central government is well aware of current systemic issues that could weaken the ‘war efforts’ and are tactically positioning to put in place fundamental reforms to strengthen such weaknesses”

Also, last month, the Ministry of Water Resources, NDRC, the Ministry of Finance and other 7 departments jointly issued the “Work Plan on Implementing Assessment of the Most Stringent Water Management System”, to include water as an important indicator in the performance evaluation review of provincial cadres & leaders. Officials with outstanding performance will be given priority in future relevant projects, while those who failed the assessment will need to submit a written report explaining their actions with proposed corrective measures within one month. The alignment of environmental performance with that of the performance review of public officials is also reinforced by a proposed tightening of Article 22 of the Environmental Law which will make the completion of the assessment by State Council and local governments mandatory and available to public.

It appears that central government is well aware of current systemic issues that could weaken the ‘war efforts’ and are tactically positioning to put in place fundamental reforms to strengthen such weaknesses; after all as Sun Tzu says …  “If you know yourself and your enemy, out of a hundred wars, you will win a hundred times”.

Main Stratagems & Offensives

The main thrust of the ‘war effort’ is to protect China’s water sources through a series of “Pollution Prevention & Control Action Plans”. As groundwater woes are more severe, groundwater protection will be prioritized over surface water.

The main thrust of the ‘war effort’ is to protect China’s water sources through a series of “Pollution Prevention & Control Action Plans”

In fact in late 2011, the MEP had already come up with a “National Groundwater Pollution Prevention Plan 2011-2020”. Groundwater monitoring systems are to be set up before 2015 and monitoring will start in earnest after 2015. Hopefully by then, the new environmental law that will make discharging pollutants into ground illegal and criminally punishable will be in place. The “Water Pollution Prevention & Control Action Plan” also known as the “Clean Water Action Plan” referred to by Li Keqiang is expected to be issued by 1H2014.
14 Priority Provinces for Heavy Metal Pollution Control
As for heavy metals, central government has identified 14 key provinces where efforts will be focused.
As can be seen from the graph on the right, these 14 provinces account for a lion share of each of the 5 heavy metals in the 12FYP targeted for pollution reduction.

Also, since various industries are responsible for these pollutants, the MEP is tightening up and/or issuing new standards across the “most polluting” industries so that these targets can be reached (see Tactical Positioning below).

Finally,  in addition to discharge standards, there are plans in place to deal with important cross “silo” issues such as energy & food security:

  • Energy security: Water-for-Coal Plan which states that future development of large coal bases of China will take into account regional water availability
  • Food security & safety: The imminent Soil Protection & Pollution Remediation Action Plan expected to be issued in 2014. This should prevent further deterioration in soil quality and address issues like the withdrawal of 3.33 million hectares of contaminated cropland from the farming system. The government is also drafting the Soil Environmental Protection Law – more on soil here

These plans which straddle multiple industries and various ministries will require better cooperation between ministries for smooth execution, again highlighting the urgency of MEP reform (please see “MEP Reform: Mountaintop to Ocean?” for more).

Tactical Positioning for Maximum Effect

  1. Given that it is the #1 priority to satisfy the masses and their concerns over food safety and drinking water, resolving issues in municipal/domestic water are key (despite being the smallest user of water at 12%);
  2. Industry follows closely behind as untreated discharge & heavy metal pollution also affect the public through soil contamination; and
  3. Finally, the more difficult to resolve nonpoint-source pollution from agricultural wastewater discharge.

Here’s a quick summary of the tactical moves so far in the ‘war on pollution’:

Domestic: Prioritise safe drinking water & deal with rising wastewater pressures from urbanisation

  • Urban tiered pricing – Raising the Water Resource Fee will allow for the financing of water treatment plants and piping network to meet the new national drinking water standards

China Water Risk 8 Wastewater Facts

  • National Drinking Water Standards – Currently drinking water standards differ from province-to-province, the new national standards will be in place in 2015
  • Wastewater treatment & discharge – 12FYP wastewater treatment targets for cities, counties and townships: efficiency of existing plants are to be improved as well as build out of new wastewater treatment plants, wastewater piping network and RMB60billion dedicated to sludge treatment facilities over the next 5 years – for more check out “8 Facts on China’s Wastewater”

For more views on whether municipal water can meet rising demand in water given rising urbanization, check out Shanghai’s Green Initiatives’ opinion on Can Cities Meeting Rising Demand”.

Industrial: ‘Large stick’ approach with specific industry standards & penalties rather than price hike

Fundamental Issues in Industrial Water

    • Pricing – Water Resources Fee price increase is signaled by the NDRC which should encourage efficient water use but there is yet a firm indication of reform in industrial wastewater treatment standards or pricing.

Please see “Fundamental Issues in Industrial Water” our in-depth interview with Professor Ma Zhong, dean of the School of Environment at Renmin University for why these systemic issues means it is cheaper to pollute than to clean up

    • Pollution ‘Red Line’ Limits – The main tool here is stricter/new discharge standards in key polluting industries. Various discharge standards have been released in the past year for different industries from leather & fur making to cement kilns – see “2013-2014 Key Water Policies” for the list of new standards issued this year
    • Pollution Prevention & Control – Central government appears to favour a ‘large stick’ approach, rather than reforming fundamental issues in industrial wastewater & discharge standards and pricing such as:
      • Revision in Environmental Law –  Large fines, criminal punishment and public naming & shaming as well as an improvement in disclosure to rein in untreated wastewater discharge and treated discharge that does not meet the relevant standards;
      • Enterprise Environmental  Credit Evaluation – These evaluations will be run across various polluting industries identified which include thermal power, coal, cement, aluminum, petrochems, breweries, pharmaceuticals, textiles, leather and paper. Companies will be assessed and assigned an environmental rating based on its pollution levels. It is intended that these ratings will be used by banks & financial institutions in China to either limit access to capital, or provide preferential lending rates depending on performance; and
      • Ecological Compensation Schemes  – Four  key areas have been identified for these schemes: 1) nature protection zone; 2) key ecological functional zone; 3) mining; and 4) watersheds which could include a variety of ‘instruments’ such as of an environmental tax or establishing market mechanisms for pollution rights exchange. The imminent coal resources tax is an example of such a scheme to balance the “balance the environment, social & economic development” – see our Coal Resources Tax notice here

Agricultural: Longer term fix, focus on soil remediation & pollution from animal husbandry

    • Pricing – Water for agriculture is currently free and therefore pricing does not play a part in curbing pollution in agricultural water, although this might change in the future
    • Water Pollution Control – Nonpoint-source pollution in agriculture is harder to monitor – see “Rural Double Whammy” in  “8 Facts on China’s Wastewater”. Therefore we expect government to control pollution by limiting excessive fertiliser use and heavy metal pollution from industry. As for point-source pollution from animal husbandry (conspicuous dead-pigs-in-rivers) new discharge standards for animal husbandry with material punitive fines are effective on 1 January 2014 (click here for a summary of the standards)
    • Soil Contamination –   The “Soil Protection & Pollution Remediation Action Plan” is expected to be issued in 2014.  This is necessary to allay food safety fears (click here for an a quick summary of recent action soil pollution)

2013-2014 Key Water PoliciesHowever, due to the small average plot size of farmland in China of 2.3mu (0.16 hectare) in 2012, the implementation of the above may prove to be practically difficult. As such, the government is also moving to up-scale both animal and crop farming … watch out for a full review on water in agriculture next month.

For a full list of key water related policies from 2011- February 2013, click here and for March 2013 to 2014, click here.

Profiting from War

In every war, opportunity arises to profit from war. If the sword is indeed sharpened, a Super MEP will be able to wield a large stick to drive the intended US$750 billion Strategic Emerging Industry of Environmental Protection & Energy Savings.

In every war, opportunity arises to profit from war … a Super MEP will be able to wield a large stick to drive the intended US$750bn Environmental Protection & Energy Savings Industry

Ensuring the success of this industry (basically the flipside of fighting pollution) is also key to the government (see our Trend #1 in “5 Trends for 2014”). If we buy into the success of this new industry then the fundamental changes required for a successful war discussed in Sharpen the Sword should be imminent.

The war on pollution is definitely here to stay. Central government “surround all” attack is designed to at least hold the pollution ‘Red Line’, and at best advance the line and create a new industry to shore up the economy at the same time; shifting us into an “Economy & Environment” era.

The Two Other Waters Wars …


Pollution, is only one of the “Three Red Lines” …. the two other “enemies” identified are “water use” and “water efficiency” … less visible but equally important

It’s important to step out of trees to see the woods at this point – pollution, is only one of the “Three Red Lines” of water conservancy identified by the government in 2011. The two other “enemies” identified are “water use” and “water efficiency”. These two wars are less visible but equally important and separate war efforts are going on in each of these areas.

Actions here again target key industries which are large water users to ensure the most effective outcomes after all … “There is no instance of a country having benefited from prolonged warfare.” 

These simultaneous advances to protect water resources and increase efficiency especially in the water scarce Dry 11 and China’s top farming provinces have implications for certain industries in China and global implications on trade (more on water & agriculture next month). Industries and companies should be well aware of these efforts and keep in mind the bigger picture of China’s efforts to protect her scarce resource.

Fundamental changes must be implemented if we are to increase our chances at winning this war

I have often been asked – surely the priority is air rather than water? Yes, air pollution must be addressed but water is also a must-have commodity for which there is no subsitute. A war on water pollution, let alone water use and efficiency is daunting. Fundamental changes must be implemented if we are to increase our chances at winning this war. As Ma Zhong succinctly puts it water pollution is harder to resolve and to recover”…

Investing RMB1 trillion may help Beijing bring back blue skies, but perhaps even RMB5 trillion will not necessarily deliver the promise of cleaning up China’s water resources”.

Ma Zhong, Dean of the School of Environment, Renmin University 


CWR Water Philanthrophy Invitation
We are excited that award-winning photographer Lu Guang will be speaking at our Water Philanthropy Forum sponsored by Coutts, in Hong Kong on 19 March, 2014.
See more on this event here.

Further Reading

  • MEP Reform: From Mountaintop to Ocean? – The MEP is currently regarded as too weak to punish polluters due to dispersed authority & overlapping functions. Given the ‘war on pollution’, is reform to make a Super MEP necessary to improve China’s ‘mountains, water, forest, farmland & lakes’?
  • 2013-2014 Key Water Policies Review – Haven’t been following China’s Three Red Lines strategy to protect water? Check out our summary of key water policies from 2013 to 2014
  • Can Cities Meet Increasing Water Demands – Nitin Dani and Georgina Glanfield from Green Initiatives in Shanghai share their thoughts on how Chinese cities can ensure water security in the future. Can the public play a role?
  • China Water Risk’s 5 Trends for 2014 – With environmental risk cited as one of the top risks most likely to derail economic growth along with the banking crisis and housing bubble, check out our top 5 trends in water for the year of the Green Horse

Law & Enforcement

  • More Power to Enforcement – Debra Tan gives a run down of upcoming “institutional innovations” discussed at the 2013 Beijing Forum and why the path-of-more-enforcement is still full of “areas of confusion”
  • Environmental Law Amendment: 40 Year Set Back? – Will the proposed amendment set back China’s environmental development by forty years? Or will it be shelved?

Water Pricing

  • Fundamental Issues: Industrial Wastewater – Professor Ma Zhong, dean of the School of Environment of Renmin University gives his in-depth views on the industrial wastewater standards & pricing. Is it cheaper to pollute than to treat?
  • Pricing Water – With the NDRC’s recent announcement of tiered tariff hikes across China’s cities to rein in top end water users, Tan mulls over the proposed tiered water tariffs hikes and whether price points and switchpoints between tiers are properly set


  • Fundamental Issues: Industrial Wastewater – Professor Ma Zhong, dean of the School of Environment of Renmin University gives his in-depth views on the industrial wastewater standards & pricing. Is it cheaper to pollute than to treat?
  • 8 Facts on China’s Wastewater – Don’t know anything about wastewater in China? Is it on the rise? Is industrial wastewater under-reported? Is it worse for rural areas? Check out our 8 facts from tech, key pollutants to standards



Debra Tan
Author: Debra Tan
Debra heads the CWR team and has steered the CWR brand from idea to a leader in the water risk conversation globally. Reports she has written for and with financial institutions analyzing the impact of water risks on the Power, Mining, Agricultural and Textiles industries have been considered groundbreaking and instrumental in understanding not just China’s but future global water challenges. One of these led the fashion industry to nominate CWR as a finalist for the Global Leadership Awards in Sustainable Apparel; another is helping to build consensus toward water risk valuation. Debra is a prolific speaker on water risk delivering keynotes, participating in panel discussions at water prize seminars, numerous investor & industry conferences as well as G2G and academic forums. Before venturing into “water”, she worked in finance, spending over a decade as a chartered accountant and investment banker specializing in M&A and strategic advisory. Debra left banking to pursue her interest in photography and also ran and organized philanthropic and luxury holidays for a small but global private members travel network She has lived and worked in Beijing, HK, KL, London, New York and Singapore and spends her spare time exploring glaciers in Asia.
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