Water-nomics: Trade-offs Along The Yangtze

By Feng Hu 17 June, 2016

CWR & MEP FECO’s brief on strategies to find the right mix of water & economic development along the Yangtze

China Water Risk, together with the Foreign Economic Cooperation Office of the Ministry of Environmental Protection (MEP-FECO), jointly published the policy brief “WATER-NOMICS OF THE YANGTZE RIVER ECONOMIC BELT: Strategies & recommendations for green development along the river“. 

Fast economic growth and rapid urbanization have put much pressure on the water resources and ecosystems along the Yangtze.  As such, the brief explores the linkages between water use and allocation, as well as pollution control and economic development in the Yangtze River Economic Belt (YREB).

The YREB, first defined in the 2014 No.1 Document, covers nine provinces and connects two municipalities (Chongqing and Shanghai). The joint brief highlights different macro challenges faced by the various regions of the YREB: the Upper Reaches, the Middle Reaches and the Yangtze River Delta (YRD).
Access the full CWR-MEP FECO brief here.

The heart of China’s water & economic security

For centuries, the Yangtze River has been considered a ‘golden waterway’ for transporting goods between cities and villages along the river. Now, many of these cities have grown into important manufacturing hubs, not only for China but also the world. Products are shipped from inland regions along the river to port cities such as Chongqing and Wuhan, and then delivered to the rest of China via railways and highways. Goods from YREB are also shipped overseas from two of the world’s largest ports at the mouth of the YRD, Shanghai and Ningbo.

 

The YREB, with 42% of China’s GDP & 43% of its population, is the socio-economic powerhouse of China

Thanks to such natural advantages, the YREB is the socio-economic powerhouse of China. According to the joint brief,  in 2014, the 11 YREB provinces and municipalities, with 43% of China’s population, generated RMB28 trillion in GRP, representing nearly 42% of the national total¹.

This region’s economy is characterized by vibrant growth of industrial clusters dotted along the River, especially in the Middle Reaches and the YRD. As highlighted in the brief the YREB as a whole is dominating a wide range of goods that are key to various industries from building materials to textile manufacturing and to agricultural chemicals.

YREB is crucial for food & energy security – 65% rice & 40% electricity…

…but development has taken its toll

Moreover, the YREB is also important to ensure the food & energy security, not only of the region but also the whole country, as it produces 65% of the nation’s rice and 40% of electricity generation (73% for hydro).

However, such impressive dominance in manufacturing has resulted in the heavy use of resources and great pressure on the environment.

The joint brief warns that the YREB’s “water use has been rising at a CAGR of 1.03%…However, under the Three Red Lines policy, China’s 2020 water use cap only allows for a 2015-2020 CAGR of 1.08%. The 2020-2030 CAGR is even more stringent at 0.44%.” So, it is clear that there is still much room for the YREB to optimize water efficiencies, especially within its industries.

Although not easy, the YREB must lead China’s path in green development

The YREB must lead China’s path towards water & economic security. This will be a huge challenge; especially amid a global economic slowdown and constraints imposed by climate change.

As discussed in the brief, decisions made in the region are not just important for China, they will impact the rest of the world through global trade.

Valuable lessons can be learnt from the pursuit of green development in the YREB, as region is like the country in a nutshell, with disparities in development among regions.

Upper reaches to the delta: economic disparities & the risk of shifting pollution upstream

If you ever have had a chance travel along the Yangtze River from the Upper Reaches to the Delta: you will start off at the Qinghai-Tibetan Plateau, pass some great mountains and valleys in the Southwest, then amble through rice fields and big dams in Hubei, Hunan and Jiangxi, only to encounter many industrial parks in the YRD, and finish in Shanghai where you can enjoy the metropolitan skyline.

These visual differences reflect the vast economic disparities amongst the three regions along the Yangtze. According to the joint brief, both in terms of total GDP and GDP per capita, the YRD is the richest of the three. In 2014, the YRD’s GDP reached 12.9 trillion yuan, about one fifth of the national total or 45% of the YREB total. Moreover, its per capita GDP is more than twice of that of the Middle and Upper Reaches as show in the chart below abstracted from the brief:

Vast economic disparities amongst the three regions

YRD is the richest with GDP per capita >2x that of Middle & Upper Reaches

As warned in the joint brief, the difference in economic development of the three regions has led to dispersed trends in pollution, as well as water use. For instance, in 2014, the YRD, the Middle Reaches and the Upper Reaches accounted for 40%, 36% and 24% of the total wastewater discharge in the YREB respectively.

Brief warns that difference in economic development of 3 regions has led to dispersed trends in pollution & water use

From an economic point of view, it seems logical to move industries inland to help Upper and Middle Reaches provinces.  However, deeper analysis in the brief shows that inland provinces are still lagging in wastewater treatment capacities. Without proper treatment, pollution discharged upstream can be carried downstream by the river to the sea adding further pressures to the already polluted YRD – more on this in “Yangtze Flows: Pollution & Heavy Metals”).

Managing water risks within the YREB though “Upgrade, Protect & Advance”

Clearly an economic mix which gives a high GDP per unit of water use as well as high GDP per unit of wastewater discharged is preferred.

The joint brief compared water use and wastewater discharge per RMB10,000 across the three regions in the YREB while taking into account GDP contribution from agriculture, industry and services sectors. The chart below shows the comparison results of all the YREB provinces:

It is clear from the chart that to generate the same amount of GDP, provinces in the Middle Reaches (such as Hubei, Hunan and Jiangxi) are among the most water intensive and most polluting; while, provinces in the YRD are performing relatively well compared to the national average.

Jiangsu uses almost 3x more water than Shandong to generate only 9.2% more GDP

However, as highlighted in the brief, although Jiangsu is one of the better-performing provinces in the YREB, it “uses almost 3x more water than Shandong to generate 9.2% more GDP”.

Thus, even within the YRD, there is still much room for improvement.

Therefore, the joint brief proposes different strategies in water use and wastewater discharge for each region. Broadly, they are: Protect in the Upper Reaches; Upgrade in the Middle Reaches & Advance in the YRD.

 Innovation is not just in technology & business models, but also in policy making

It is all about “business unusual” and innovation – not just in technology and business models but also in policy making.

Smarter decisions in policy making and investment shall be made to achieve green economic development. Indeed, China has been making strides towards this…

Prosperous policies flow in the YREB

Recent key policies highlight China’s push to use the region as a pilot to explore pathways towards green development. To give an idea of direction, selective key policies are listed in the table below:

YREB’s dominance in China’s economy, means it must lead by example in finding innovative and clean solutions for water, food & energy security.

“…policy making should focus on managing trade-offs in balancing water allocation and pollution with economic mix”

Better understanding of trade-offs in ‘water-nomics’ at the YREB is necessary as they will have implications for China’s national water, food, energy and economic security.
To this end, the brief concludes: “to achieve harmonious development on the Yangtze, policy making should focus on managing trade-offs in balancing water allocation and pollution with economic mix”.