OPINION: Water Trading in China: A Step Toward Sustainability

In recent years, scarcity and pollution of water have become the paramount environmental woe in China. Numerous reports and books have exposed China's water crisis, depicting a nation suffering in the face of black-running rivers and dried-up waterways. Nationwide, the per capita availability of fresh water is only one-quarter of the world average.

But a new regulation from the nation's water authority may hold the key to achieving water sustainability in this thirsty country. The Interim Measure for Water Quantity Allocation, which came into effect on February 1, provides a framework for allocating water rights across provinces, autonomous regions, and municipalities that are under the direct jurisdiction of the central government. The ruling's 17 stipulations lay out the principles, mechanisms, and practices for water allocation, potentially opening Chinese markets for water trading and enabling the use of market tools to promote conservation.

The need for better delineation of water rights in China has become increasingly urgent. Water demands within shared river basins are frequently at conflict due to industrial expansion and urbanization. During a drought in 2006, Chongqing municipality in western China saw a dramatic decline in flows from the Jialing River, the city's main water source, despite the fact that the river's upper reaches had received plenty of rain. The shortage was triggered by the more than 50 dams upstream from the city, which had retained the water for power generation. Such competing claims are prevalent in nearly all of China's major river basins.

As water demands keep rising, water waste remains pervasive due to the current "open-access" nature of China's water resources. According to statistics, in 2003 China's utilization coefficient for agricultural irrigation water was only 0.4-0.5, compared to 0.7-0.8 in industrial countries. Water use per unit of gross domestic product was as high as 413 cubic meters, four times the world average, while water use per value added of industry was 218 cubic meters, 5 to 10 times the level in industrial countries. China's industrial water-recycling rate was only 50 percent,compared to 85 percent in industrial countries.

The traditional practices of promoting conservation through education, moral suasion, and technological innovation are no longer able to keep up with China's rising water demand. By allocating water rights and introducing market-based tools, the new regulation may accelerate progress toward water saving, protection, and pollution control.

The regulation is a response to several successful trial efforts over the past eight years. In 2000, China saw its first case of water trading between Dongyang City and Yiwu City in Zhejiang province, with the latter buying some 50 million cubic meters of water annually from the former at a price of 4 RMB (US$0.57) per cubic meter. The pact resulted in a win-win situation in early 2005, following a serious drought in Yiwu City. Yiwu avoided the significant cost of having to build its own reservoirs, while Dongyang received funds for maintaining its existing reservoirs and water infrastructure.  

Since then, China has launched trial projects in several regions, including Ningxia, Inner Mongolia, and Ganxu in the northwest; Jiangxi and Chongqing in the west; Shanxi in the middle region; and watersheds covering Beijing and Hebei. The projects are either local initiatives spurred by acute water crises, or efforts by the central government to promote water savings.

The success of these projects has given policymakers confidence to explore bolder national schemes, resulting in the recent water-rights regulation. If effectively enforced, the ruling could be as significant as China's widespread land reforms in the 1950s, which freed up rural labor and made it possible to feed the nation's 1.3 billion people. Although much implementation work remains to be done, the regulation is a bold first step toward sound water management in China.

Yingling Liu is manager of the China Program at the Worldwatch Institute, a Washington-D.C. based environmental research organization.