Highlights
– Decade of drought in North China likely to only get worse
– Water redistribution efforts likely to create major social unrest
– China’s current water policies unsustainable in the medium to long-term
A decade of draught combined with emptying aquifers in the North China Plain will increase the frequency and severity of anti-government protests, reduce the ability of businesses in the region to maintain current operations, and heighten inter-provincial animosity in the near and middle term. Depending on nature, the world economy, and government decisions, the long-term outlook for China includes severe water crises, significantly higher prices for food and energy, and mass emigration of rural residents.
The Next Battle
Businesses with operations in the provinces of Anhai, Gansu, Hebei, Henan, Shandong, Shanxi, and Shaanxi, as well as the cities of Beijing and Tianjin, will encounter higher costs and threats to growth. Provincial governments will increase demands for water and energy conservation. Street protests against falling government water subsidies and rising food prices will impede transportation and logistic infrastructure. Provincial contests over water rights may lead to threats of resource cut-offs to China’s capital city and its environs.
Despite vast infrastructure investment and redistribution of water resources from south to north, northern China does not possess, and appears unable to acquire, the necessary water to maintain current usage levels, let alone what is needed for future economic growth. The North China Plain, which produces half of the country’s wheat and a third of its corn relies on groundwater for 60 percent of its water supply to its approximately 145 million residents. Water usage in China has more than quintupled since 1949, compelling leaders to face tough political choices as cities, industry and farming compete for a finite and unbalanced water supply.
South-to-North Water Transfer Project
The $62 Billion South-to-North Water Transfer Project, expected to be complete in 2014, will funnel 12 trillion gallons northward every year along three routes from the Yangtze River basin. This project is the central government’s primary answer to the water crisis. Farmers are allotted almost none of the water from this project, as it is directed toward the cities, primarily Beijing and Tianjin. Provinces from Southern China, from where the water originates, have expressed animosity toward those in the north who are taking their water. The rural provinces surrounding Beijing and Tianjin have noted the unfair aspect of this project, which goes through their territory, but ignores their thirsty farms. Subsidizing the capital at the expense of farm communities and residents in China’s central plain is winning Beijing few friends in the countryside.
Factors Influencing The Crisis
Three factors will determine the severity of this quiet crisis: the duration of the draught, the strength and length of the world economic slowdown, and the outcome of political choices on the part of the Chinese government to pursue sustainable growth models or breakneck economic expansion. The second factor will likely help Beijing decide how to proceed on the third.
The continuation of the already decade-long drought will be the primary determinant of how this crisis unfolds. Demands on the three rivers that flow eastward into the North China Plain – the Hai, the Yellow, and the Huai – have them running dry before they reach the sea. The World Bank forecasts “catastrophic consequences for future generations” unless water use and supply are quickly brought back into balance.
The severity and length of the world economic slowdown will be a second factor determining how this crisis unfolds in the near to medium-term. China’s 400 million illegal migrant workers who flocked to cities along the eastern seaboard during the period of economic expansion have begun returning to their rural villages due to factory shutdowns. As these workers come home to scratch out a subsistence living, those from the North China Plain will find farming difficult and expensive. These individuals will be competing for agricultural resources with local farmers and industry. Such competition will leave a large number of migrant workers without jobs or food, likely leading to an increased number of anti-government and anti-industrial protests.
A third factor in determining the severity of this crisis will be what level of water conservation, proper irrigation, and water reclamation is be pursued in the affected area. Millions of farmers will be put out of work and world grain prices could spike if the government chooses to focus on conservation of resources. Yet, if the government chooses to maintain growth at anticipated levels, the region could completely run out of water.
Outlook
As a result of these three factors, we believe the Chinese government will be forced to address this crisis through a mix of conservation, more heavy infrastructure investments to redistribute water resources, and economic subsidies to farmers to replace lost crops. All of these factors will slow economic growth in northern China for the duration of this crisis. With the economic slowdown already knocking industrial production across the Eastern Seaboard, this water crisis will make it that much more difficult for the central government to keep people employed and satisfied with Beijing’s leadership. Beijing may also look outside China, to Central Asia, the Russian Far East, and Southeast Asia for access to their water resources. This approach would be politically difficult and would require significant infrastructure investments.
