The Thirsty Dragon: Water-nomics And Trade Offs

Courtesy of China Water Risk, a new report suggesting that tough trade-offs are on the horizon as China manages its water for economic development which may cause various outputs to shift within China as cotton clashes with coal to “free up” water:

HSBC releases report titled No Water, More Trade-offs”. This new report is the 3rd in the “No Water” series of reports where China Water Risk was commissioned by HSBC Climate Change Centre to research and analyse the findings which form the basis of this report.

This new report explores the relationship between water & economics and examines how China can manage growth with limited water resources. Can China follow the development path of some of the G20 countries? What is the optimum economic mix of industry, services and agriculture? Which industries and crops should stay or go?

The report cautions that “tough trade-offs are on the horizon as China manages its water for economic development”.

Given the need to balance water, energy and food security, regional trade-offs within China and between commodities are explored – in particular for cotton and coal.

No Water More Trade Offs

The report warns:

  • Water is essential for almost all economic activity and China’s water caps could limit GDP growth;
  • To stay within the water caps, China will need to look beyond water savings from efficiency gains and optimise economic mix;
  • Water can also be managed by importing more water-intensive products, which is how countries like France and the UK have achieved higher levels of income  using less water, despite similar economic mixes;
  • Matching local water resources to output by shifting production bases of certain products is another way – in balancing food & energy security, China may decide not to grow cotton to “free up” land and water to grow other edible crops; and
  • China could also  choose not to mine more coal from water scarce regions in favour production in regions with more water resources such as Xinjiang.

Findings are non-intuitive: “output may shift within China as cotton clashes with coal to “free up” water”.

According to the report, shifting cotton production from the North China Plain could “free up” water equivalent to the entire capacity of Phase 1 of the South-to-North Water Diversion Project’s Middle Route. Such shifts in production has implications for global trade and sectors which which rely on these as inputs.

This entry was posted on Monday, August 24th, 2015 at 7:47 am and is filed under China.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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