IN a drought that's been plaguing China since July, 14 million people in the country's southwest are without adequate drinking water; 14 million acres of land are parched and hundreds of reservoirs have all but evaporated, according to Xinhua, the state news agency.

The cause of China's harshest drought in 60 years is a tragic lack of rainfall.

Four years ago, 2 million people in the south-central city of Wuxi in Jiangsu Province found themselves without drinking water for another reason.

About 70 percent of their water supply had become unusable, stinking and polluted from a vast algae bloom at Taihu Lake in the Yangtze Delta plain.

Similarly, 4 million residents of Harbin, Heilongjiang Province, were without potable water for days in 2005 when a chemicals plant in neighboring Jilin Province contaminated the water supply.

Whether the causes are natural or man made, the lack of water poses a threat to China's breakneck economic growth.

The country is home to nearly 20 percent of the world's population, but only 6.5 percent of its global water resources.

The country's annual per capita water availability of 2,156 cubic meters, according to the latest-available statistics from 2007, is one-fourth the world average, the World Bank reported.

It hovers dangerously close to the annual per capita benchmark of 2,000 cubic meters that the Food and Agriculture Organization (FAO) uses to identify the parts of the world suffering from "water scarcity."

China's groundwater, down 50 meters since the 1960s, is falling between three meters and five meters a year, the World Bank noted.

"Water scarcity and contamination are huge challenges in China," says Kevin Tu, senior associate at the Carnegie Endowment for International Peace in Washington, DC.

The country is paying a high price in its struggle to address the challenges. In the 2007 study, the World Bank estimated that water pollution is costing the country the equivalent of 1 percent of its GDP.

For companies weighing how or whether to operate in the country, water is now among the chief risk factors that is assessed, especially for sectors in which it is a key component of a firm's supply chain.

"For investors, water carries a risk potentially as damaging as non-performing loans, real estate bubbles ... and political corruption," according to Brahman Chellaney, strategic studies professor at the Center for Policy Research (CPR) in New Delhi, India.

Exacerbating the problem is a geographic imbalance.

"Like many places, it's really an issue of distribution - where the populations are and where the water is are sharply different," notes Frederick N. Scatena, professor and chair of the earth and environmental science department at the University of Pennsylvania.

North China contains about two-thirds of the nation's farmland but only about 20 percent of its water resources, according to Chellaney.

In the northern Yellow River basin, annual per capita water availability is 757 cubic meters, far below the FAO water scarcity benchmark of 2,000 cubic meters.

China's answer: The South-to-North Water Diversion Project, which the State Council approved in 2002. Reminiscent of the 1,700-kilometer Grand Canal stretching from Hangzhou to Beijing, which began construction during the Sui Dynasty (581 AD to 618 AD), the project will divert water from the Yangtze River to the Yellow, Huai and Hai rivers in the north when it is eventually completed.

"It's really quite amazing how they're pumping water north. It's going to be expensive, and take a long time to do," says Scatena. "They're planning water projects that will be much larger than anything the US has when they're finally done. But there are local impacts to all that," including the need to uproot entire villages to make way for the mega project.

Waste not, want not

China's State Environmental Protection Agency says the country can cut its water use significantly by addressing wastage.

At US$3.60 per cubic meter, China's water productivity, or the amount of water required to generate one unit of GDP, is below the US$4.80 per cubic meter average for middle-income countries and the US$35.80 per cubic meter average for high-income countries, according to a 2009 World Bank study.

One reason for the big gap is sub-optimal farming in China, including the use of outdated irrigation methods.

"Wasteful irrigation infrastructure and poorly managed water use, as well as fast industrialization and urbanization, have led to a serious depletion of groundwater aquifers, loss of natural habitats and water pollution," says Chaoqing Yu, a professor at Tsinghua University's Center for Earth System Science.

Earlier this year, Yu wrote an opinion piece for Nature.com about the country's now perilous water situation.

In the article, she noted that over the past 60 years, China has constructed 86,000 reservoirs, drilled more than four million wells and developed 58 million hectares of irrigated land "on which 70 percent of the country's grain is grown."

High-tech solutions have also been called upon. In a government-run project launched in 2002, satellite sensing technology now measures the loss of water from the Hai River to the air.

Armed with such data, water specialists are providing farmers evidence of how certain techniques, such as irrigating at night and replacing irrigation ditches with pipes, can reduce those losses.

While agriculture is indeed a big water guzzler, it isn't the sole culprit.

China's industrial sector, which accounts for about a quarter of water withdrawals, is also wasteful.

Chinese paper mills, for instance, consume as much as 500 tons of water to produce one ton of paper, twice the amount used by mills in industrialized countries, according to the World Bank.

China's largest steel mills use 60 percent more water per ton of steel than counterparts in the US, Japan and Germany on average. What's more, 40 percent of industrial water in China is recycled on average, compared with up to 80 percent in industrialized countries.

China's 12th Five Year Plan, running through 2015, calls for a 30 percent reduction in water consumption for every new dollar of industrial output, with a big focus on sectors such as power generation, mining and steel making. The government says it has also begun limiting new licenses for water-intensive industries, such as paper, chemical, clothing and dye factories, in the north.



Adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original version, please visit: http://bit.ly/pOmFag.