China's regional water scarcity and implications for grain supply and trade

Environment and Planning A 2001, volume 33, pages 79 ^ 95 DOI:10.1068/a3352 China's regional water scarcity and implications for grain supply and trade Hong Yang, Alexander Zehnder Swiss Federal Institute for Environmental Science and Technology, Uberlandstrasse 133, CH-8600 Dubendorf, Switzerland; e-mail: hong.yang@eawag.ch, zehnder@eawag.ch Received 11 April 2000; in revised form 15 September 2000 Abstract. In this paper we highlight the water scarcity and resource depletion in the North China Plain, the `breadbasket' of China. A projection of water demand in the region indicates a continuous aggravation in water deficit in the coming years. Analyses of countermeasures on the supply and demand side suggest that the conventional wisdom of `opening up new sources and economising on the use of resources' may not be an optimal way to deal with water scarcity in the region. Importing water in the form of grain should be taken as an additional measure. This `virtual water import' option needs to be incorporated into the current regional and national agricultural development strategy in which crop structural adjustment is at the core. 1 Introduction During the past two decades of economic reform, China's national economy has grown rapidly and the standard of living, notably food consumption, has improved substantially. Alongside this achievement there has been an increase in the total volume of water use. Between 1980 and 1998 total water withdrawal increased from 443.7 billion m 3 (United Nations, 1997) to 543.5 billion m 3 (Ministry of Water Resources, 2000). A noteworthy feature is that the increased water withdrawal was overwhelmingly attributable to the expansion of municipal and industrial uses. The volume of water for irrigation increased relatively little, from 358 billion m 3 in 1980 to 369 billion m 3 in 1998. During this period, irrigated areas rose from 44.96 million ha to 52.29 million ha, indicating a decline in average water use per unit of irrigated land. The share of irrigation in total water withdrawal dropped from around 80% to 68% during the same period. On the supply side, however, the situation is rather severe. Water shortages have occurred in many areas, particularly in the north. It is reported that in some northern cities, water supply can meet barely 70% of the demand during the dry season (Ministry of Water Resources, 1998). Water shortage has caused hardships to household livelihoods and losses in the overall economy, including grain output. The increasing water scarcity and the competition from other sectors have put irrigation under great pressure in many northern regions. Grain production, a sector heavily dependent on irrigation, is facing unprecedented challenge. The increasing water stress has led to a flourishing of studies of China's water issues (Brown and Halweil, 1998; Chen et al, 1999; Conrad et al, 1998; Heilig, 1999; Jiang, 2000; Li, 1999; Liu and He, 1996; Nickum, 1995; 1998; Zhang, 2000, Zhu, 2000). Surprisingly, except for a few extremely pessimistic projections, (1) most people, particularly the Chinese themselves, believe that China has enough water to meet the demand for industrial growth, household uses, as well as grain production in the years to come. (1) For example, Brown and Halweil (1998) warned that China has been withdrawing more water than the sustainable amount available. They projected a water demand of 1068 billion m 3 for 2030. Food production will eventually fall as the result of the depletion of water resources.china would have to increase imports to meet its growing food demand. This could push up food prices in the world market and shake international food security.

80 H Yang, A Zehnder The current water shortage crisis is rather localised, economic, and institutional. Many feel that China's water problem can be solved locally or at most within its national boundary. This view is reflected by the fact that most studies of measures dealing with water scarcity have not considered the role of interregional and international trade. Measures prescribed have mainly been locally oriented, aiming either to increase water supply (including transferring water from outside) or to use the available water more efficiently. As for the few studies that have considered trade (for example, Brown and Halweil, 1998; Conrad et al, 1998), the approach is often to set a goal of grain output for a region or for the country and then to assess whether or not there is enough water to produce this preset output. If not, imports are needed. In this study we attempt to bring a new perspective into the search for solutions for China's regional water scarcity. As irrigation is by far the largest water user and food security is one of the most important concerns of the country, we focus on the impact of regional water scarcity on irrigation and measures to deal with it. The paper begins with a brief overview of water-resource endowment at the national and regional level. We then turn to the water-scarce North China Plain provinces and examine the changes in irrigated areas and sources of irrigation water during the past two decades. This is followed by a projection of water demand in the North China Plain provinces in the coming two decades. The result shows a severe depletion of water resources. If the current trend continues there will be a continuous aggravation in water deficit in the region. The analysis also suggests that conventional demand-and-supply management measures may not be an optimal way to deal with the water-shortage problem in the North China Plain. An outward-looking measureöimporting water in the form of grainöis proposed as an additional approach. It is emphasised that this measure should be incorporated into the current regional and national agricultural development strategy in which agricultural structural adjustment is at the core. The analysis is based mainly on Chinese official statistics in conjunction with data from other empirical surveys and individual studies. The inaccuracy of official statistics for arable land and other relevant data is noteworthy. The latest estimate for China's cultivated land suggests a figure 30 ^ 40% higher than the officially published one (Ash and Edmonds, 1998; Smil, 1999). Before proceeding further with the analysis, therefore, we need to justify a study which applies inaccurate data on cultivated land. The argument here is that errors in the official statistics are systematic. They exist in the entire statistical series and the magnitude of the errors is expected to be consistent over time and space. A time-series analysis and a cross-sectional comparison are feasible as the systematic errors would not significantly affect the conclusion. This point has also been made by other people, including Ash and Edmonds (1998) and Smil (1999) in their studies of China's land issue. In fact, accepting this premise has been the foundation underlying numerous studies of China's agricultural economy which use official statistics of cultivated land, either directly or indirectly. The rest of the paper is organised as follows. In section 2 we present an overview on China's water-resource endowments and highlight the regional feature of water scarcity. In section 3 we examine changes in irrigated areas and sources of irrigation water in the water-scarce North China Plain provinces. In section 4 we conduct a projection of water demand and deficit in the North China Plain in the coming two decades. In section 5 we examine impediments and prospects for conventional supplyand-demand management measures in dealing with water scarcity in grain production. In section 6 we propose an outward-looking measure, `virtual water import', and address its rationale and feasibility under current social and economic conditions. Section 7 is a summary of the findings.

China's regional water scarcity 81 2 An overview of water-resource endowments According to the official statistics, China's annual total available water resources amount to 2812.4 billion m 3. Dividing the figure by the total population of 1.281 billion in 1998 (SSB, 1999), we get an average water availability of 2195 m 3 per capita. This figure is roughly a quarter of the world average and a sixth of the figure for the United States. Thus, China as a whole can be said to be a water-scarce country by world standards. In assessing water-resource endowments, a water-criticality classification developed by Falkenmark and Widstrand (1992) has commonly been used. According to this classification, above 1700 m 3 per capita, a country has sufficient water; between 1000 m 3 per capita and 1700 m 3 per capita, there is water stress. With less than 1000 m 3 per capita, a country reaches water scarcity, and below 500 m 3 per capita, a country faces absolute water scarcity. This classification encompassed many countries in North Africa, the Middle East, and South Asia in the categories of water stress or scarcity. With a water availability of around 2200 m 3 per capita, China is above the threshold of 1700 m 3 per capita by a relatively big margin. Hence, as far as total water resources in relation to its population are concerned, China is rather fortunate compared with many other countries that are facing nationwide water scarcity. The relatively big margin of China's average per capita water resources above the critical level has underlain many people's belief that China has enough water to meet its demands. Nevertheless, China is a large country with substantial regional variations in both natural and socioeconomic conditions. In terms of water resources, the spatial distribution is highly uneven. A regional perspective in assessing water endowments is necessary. Unfortunately, defining regions for such a purpose is difficult in China. Boundaries of watersheds are usually inconsistent with those of administrative regions under which official statistics are collected. This makes it difficult to conduct analysis based on watersheds. Partly for this reason, most studies concerning China's water issues have been carried out under the administrative framework, mostly at the provincial level. There is, however, another reason for conducting the analysis under the administrative framework: to examine the conflicts among administrative units over gains and losses in water-resource distribution and management. Understanding these conflicts is important for gaining insights into China's water problems and stipulating appropriate measures to deal with them. Figure 1 (see over) illustrates the spatial setting of water endowments across provinces. The four water-criticality levels defined by Falkenmark and Widstrand are used in assessing provincial water endowments. Table 1 (over) presents numerical indicators of water resources in each province. The figures do not include the volume of inflow and outflow in each province because of a lack of data. Provinces in the absolute water-scarcity category include Beijing, Tianjin, Hebei, Shanxi, Shandong, Henan, Ningxia, Jiangsu, and Shanghai. In Tianjin, Ningxia, and Shanghai, per capita water availability is below 200 m 3 yr 1. To put these provinces in the watershed context, Shanghai and the southern part of Jiangsu are in the Yangtze River basin. Although the volume of water engendered within their territories is small, abundant water flows into these areas before pouring into the sea. The rest of the provinces and the northern part of Jiangsu are located in the Haihe, Huaihe, and Huanghe (Yellow River) watersheds. Topographically, Beijing, Tianjin, Hebei, Shandong, and Henan are located in the North China Plain, a region that has commonly been referred to in addressing China's water crisis. Because of data constraints, we are unable to examine the exact volume of water inflow and outflow in each province. Given the basin-wide water scarcity in the Haihe, Huaihe, and Huanghe watersheds, water inflow into downstream provinces could be limited. This is, in fact, exactly the predicament facing the North China Plain

82 H Yang, A Zehnder m 3 per capita >1700 1000 ± 1700 500 ± 1000 <500 Figure 1. Per capita water availability by province, 1998. provinces. There is ample evidence showing that the situation has been getting worse during the last two decades. The volume flowing into these provinces has been reducing substantially as a result of increasing water withdrawal in upstream provinces. For example, the inflow into Shandong, the province at the mouth of the Yellow River, dropped from over 40 billion m 3 in the early 1980s to around 25 billion m 3 in the 1990s (Ministry of Water Resources, 1998). A further decline is anticipated after the completion of the Xiaolangdi Water Project in the middle reach of the Yellow River. In Hebei and Henan, a similar situation is also evident. Many rivers in the North China Plain have been experiencing ever-lengthening dry periods. Among them, the failure of the Yellow River to reach the sea for most of the time in recent years has been especially manifest. Liaoning, a heavy industrial centre in northeast China, is the sole province enduring the third degree of water criticality. Provinces in the second category include Anhui, Jilin, Shaanxi, Gansu, and Hubei. Of these provinces, Hubei and Anhui are located in the Yangtze River basin and they receive a large inflow from the river and its tributaries. This greatly increases their actual water availability. The rest of provinces all have the water availability over 1700 m 3 per capita, suggesting relatively adequate water resources. Except for Xinjiang and Qinghai, which are in northwest China, other provinces are located to the south of the Yangtze River. In these provinces, particularly in some large cities, water shortage has also been reported. However, the major causes of the water shortage there are often related to mismanagement, pollution, and lack of water-supply facilities (Wong, 1999; World Bank, 1997a). This type of water shortage differs from that in the north, where on top of all these problems, the scarcity of water resources itself has imposed a major constraint. In this study, we focus on resource-related water shortage, though this by

China's regional water scarcity 83 Table 1. Indicators of water resources by province (source: Bureau of Hydrology of the Ministry of Water and Hydroelectricity, 1987). Watershed Province Total water Water resource Water resource per capita criticality (billion m 3 ) (m 3 ) Haihe Beijing 4.08 329 4 Tianjin 1.46 153 4 Hebei 23.69 363 4 Huaihe Shandong 33.5 381 4 Huanghe Shanxi 14.35 457 4 Henan 40.77 441 4 Ningxia 0.99 187 4 Shaanxi 44.19 1 238 2 Inland Qinghai 62.62 12 625 1 Gansu 27.43 1 100 2 Xinjiang 88.28 5 139 1 Inner Mongolia 50.67 2 178 1 Northeast Liaoning 36.32 878 3 Jilin 39 1 484 2 Heilongjiang 77.58 2 068 1 Yangtze Shanghai 2.69 185 4 Jiangsu 32.54 455 4 Zhejiang 89.71 2 023 1 Anhui 67.68 1 105 2 Jiangxi 142.24 3 427 1 Hubei 98.12 1 671 2 Hunan 162.66 2 516 1 Sichuan 313.38 2 732 1 Guizhou 103.5 2 870 1 Southeast Fujian 116.87 3 561 1 South Guangdong 213.41 2 738 1 Guangxi 188 4 058 1 Southwest Yunnan 222.1 5 425 1 Tibet 448.2 180 726 1 Total 2812.44 2 275 1 no means implies that water problems caused by other factors are less serious in China. The above examination shows that water availability in the North China Plain provinces is extremely low. In contrast, relatively abundant water is available in the southern areas. This feature suggests that China's water shortage is a problem of regional scale rather than a nationwide plight. The following analysis focuses on the North China Plain for its water scarcity and its important role in China's grain production. The region produces over 50% of the nation's wheat and 33% of its corn (SSB, 1999). It has long been a `breadbasket' of China. The water scarcity and the depletion of resources in the region have profound implications for China's grain supply, particularly wheat. 3 Changes in irrigated areas and sources of irrigation water in the North China Plain 3.1 Changes in irrigated areas With less than 4% of the water resources of the country, the North China Plain possesses about 22% of the country's total cultivated land. The monsoon climate dominates the region and over 70% of the annual rainfall is concentrated in the period

84 H Yang, A Zehnder between June and September, leaving the rest of the year relatively or very dry. Irrigation is essential for the practice of multiple cropping. Given the importance of irrigation in increasing output per unit of land, expanding irrigated areas has been always encouraged and sometimes forced. Figure 2 illustrates changes in irrigated areas in the North China Plain provinces with reference to the national trend during the period 1980 ^ 98. In the early 1980s, irrigated areas stagnated at both the national level as well as in the North China Plain provinces. In Beijing and Hebei the areas even decreased. The stagnation coincided with the launch of economic reform. Many people have pointed out that the reduction in investment in water construction is a direct cause of this extraordinary trend. Reform has weakened the ability of central government to invest in water projects. At the local level, the institutional transition from the People's Commune to the Household Responsibility System largely undermined the function of collectives in organising and financing water construction and maintenance. Ageing irrigation facilities further exacerbated the situation (Huang et al, 1997; Lin, 1992; Watson, 1989; World Bank, 1999). 130 125 120 115 110 105 100 95 90 85 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 Beijing Tianjin Hebei Shandong Henan Total Figure 2. Changes in irrigated areas in the North China Plain Provinces, 1980 ^ 98 (source: SSB, 1984; 1990; 1999). There had been a recovery after the late 1980s. The strong increase occurred in Henan and Hebei. The increase in Shandong was also significant, though slightly behind the national pace. The recovery in Tianjin was rather minor. In Beijing, irrigated areas slipped to their lowest level in 1992 and recovered slightly thereafter. For the North China Plain as a whole, the expansion of irrigated areas over the years had kept pace with the national level. In 1980, irrigated areas in the region accounted for about 27% of the total irrigated land of the country. The figure remained the same in 1998. Given the very low water availability in the region, one could ask where the water for expanding irrigation had come from. 3.2 Tubewell irrigation Digging wells to fetch water has had a long history in China. However, using electrically powered tubewells to irrigate staple grain crops has only become common since the late 1970s. Today, of the total 52 million ha of irrigated areas in the country, about 28% are watered by ground aquifers (ZNN 1998).

China's regional water scarcity 85 Table 2 presents the numbers of wells and the areas irrigated with groundwater in the North China Plain provinces and in the rest of the country. It can be seen that wells are highly concentrated in the North China Plain, 73% of the total. In this region, about 64% of irrigated areas rely on groundwater. In Hebei, the proportion is as high as 80%! In Henan, the proportion is also substantial. The figure for the rest of the country is only 13%. The massive extraction of groundwater in the North China Plain has led to a rapid decline in the groundwater table. In agriculture, one of the consequences of groundwater depletion has been exhaustion and thus desertion of wells. Table 3 shows the numbers of wells added and deserted in 1997. In that year, about 222 000 new wells were drilled and 100 000 old ones were deserted in the North China Plain. This means that over 45% of the newly drilled wells were offset by deserted ones. In Beijing and Tianjin the numbers of newly drilled wells were outstripped by those deserted. The expansion of irrigation relying on overexploiting groundwater is doomed as unsustainable. Although the numbers of wells in most of the provinces have managed to increase in the past, this would not be possible in the future. The absolute decline which happened in Beijing and Tianjin could sooner or later occur in other provinces. In Shandong, for example, it has been projected that between 1995 and 2010, about 300 000 wells will be drilled. During the same period, an equal number of wells is expected to be deserted. In Hebei the depletion of groundwater has greatly slowed the increase in the total number of wells. The envisaged net increase in wells for the period 1995 ^ 2010 is only 50 000 in comparison with 182 200 during the previous fifteen years (Ministry of Water Resources, 1998), though it is very doubtful that this goal can be met. Table 2. Changes in the number of tubewells and areas irrigated with groundwater, 1985 ^ 97 (source: data for 1985 are from ZNN 1986; data for 1997 are from ZSN 1998). Number of wells Change Area irrigated Well irigation/ (thousands) 1985 ± 97 with wells 1997 total irrigation 1985 1997 (thousands) (1000 ha) 1997 (%) North China Plain 1 703.5 2 583.455 879.955 8 979.46 63.84 Beijing 41.5 43.851 2.351 126.75 39.52 Tianjin 25.2 21.948 3.252 112.02 31.80 Hebei 570.9 792.085 221.185 3 490.4 80.75 Shandong 527.4 824.468 297.068 2 300.05 48.56 Henan 538.5 901.103 362.603 2 950.24 68.09 Rest of the country 666.9 967.265 300.365 5 151.63 13.86 Total 2 370.4 3 550.72 1 180.32 1 4 131.09 27.58 Table 3. Numbers of new and deserted wells, 1997 (source: ZSN 1998). New wells Deserted wells % North China Plain 221 882 99 888 45.02 Beijing 530 773 145.85 Tianjin 1 078 1 538 142.67 Hebei 54 606 35 806 65.57 Shandong 68 379 31 404 45.93 Henan 97 289 30 367 31.21 Rest of the country 120 039 17 845 14.87

86 H Yang, A Zehnder 3.3 Draining surface runoff Before the 1980s, much of the expansion of irrigated areas had been gained through the means of constructing dams and reservoirs to tap surface runoff (Nickum, 1995). Most of these projects are small in size and built mainly by locals. Since then, however, the pace of construction of small water projects has been much slowed. In the North China Plain the number declined. Table 4 shows the changes in the numbers of reservoirs of different sizes. Between 1990 and 1997, the number of small reservoirs increased by 1284. It should be noted that the increase was entirely contributed by other regions. The number of small reservoirs in the North China Plain declined, though this was mainly the result of the decline in Hebei and Henan. In contrast to the situation of small reservoirs, the number of medium to large reservoirs increased or remained unchanged in the North China Plain provinces. Reasons for the decline in the number of small reservoirs may be multifold. The diminution of stream water is surely an important one. As mentioned earlier, many northern rivers have run dry because of the increasing withdrawal upstream. This has cut off the water sources of many small reservoirs downstream. Meanwhile, after many years of efforts at damming water, few suitable sites for dams have been left in the region. The construction of medium to large dams is usually technically complex and financially demanding. They are often beyond the capacity of locals to build. This may partly explain the increase in the medium to large reservoirs in the region, while the small ones declined. Such an increase, however, may only be a sign of the ending era of traditional engineering means in increasing water supply. Table 4. Changes in numbers of reservoirs by size and region, 1990 and 1997 (source: ZSN 1991, 1998). Region Small reservoirs Medium ± large reservoirs 1990 1997 change 1990 1997 change North China Plain 9 007 8 998 9 366 378 12 Beijing 63 64 1 20 20 0 Tianjin 78 91 13 13 14 1 Hebei 1 121 1 063 58 55 59 4 Shandong 5 428 5 508 80 168 168 0 Henan 2 317 2 272 45 110 117 7 Rest of country 71 516 72 808 1 292 2 498 2 653 155 Total 80 522 81 806 1 284 2 865 3 031 166 4 Projections on water increment in the North China Plain provinces In the following projection, water uses are aggregated into three categories: (1) urban and rural water demand: including usage for drinking, cooking, washing, and services; (2) industrial water demand; and (3) agricultural water demand: including usage for irrigation, pasture, forestry, and fishery. The trend in the three sectors between 1980 and 1998 is extrapolated to project water demand in 2010 and 2020. Irrigated areas in 2010 and 2020 are assumed to remain the same as the 1998 figure, rather than to increase as the trend after the late 1980s showed (figure 2). The projection did not consider the effect of urbanisation on water demand. Water uses for environmental purposes (such as in-stream water flow, water for pollutant dilution, salt leaching, silt flush, wildlife, etc) are also not taken into consideration. Thus, the estimates presented below are a lower bound of the water demand in the North China Plain provinces in

China's regional water scarcity 87 the next two decades. Details of the calculation of the water demand in each sector are explained in the appendix. Table 5 shows the results of the projection. The largest increment in water demand is from the urban and rural household and service sector. The figures for 2010 and 2020 are 4.2 billion m 3 and 8.3 billion m 3, respectively. In the industrial sector, the increment is smaller because of the improvement in efficiency of water use. The figures for 2010 and 2020 are 3.2 billion m 3 and 5.5 billion m 3, respectively. Agriculture is the largest user of water. The water use in agriculture in Hebei, Shandong, and Henan currently accounts for over two thirds of total water use in the provinces. Over the projected period, water demand in agriculture declines steadily because of improvements in irrigation efficiency, and the irrigated areas are kept unchanged. The total reduction in irrigation water for the region is about 3.4 billion m 3 in 2010 and 6.1 billion m 3 in 2020 against the volume in 1998. This is equivalent to 6.1% and 11% efficiency improvement in irrigation in the respective years. The water saved from irrigation will partially offset the increased demand in other sectors. It should be pointed out that the above volume of water demand is projected on the basis of past trends. In reality, it will become increasingly difficult to improve the efficiency of water use after the initial rapid stage. Thus, it is expected that achieving the projected reduction in irrigation water use in the years to come will need greater efforts than ever before. The same can be said of the industrial sector. The projection shows that, even if the improvement in the efficiency of water use can maintain its pace as before, there is still an increase in water demand of approximately 4 billion m 3 in 2010 and 8 billion m 3 in 2020 because of the absolute increase in the nonagricultural sectors. Therefore, the challenge facing the North China Plain is not only to maintain the pace of efficiency improvement achieved previously, but also to find the additional water to meet the increased demand in the years to come. Table 5. Projections (million m 3 ) on water demand in the North China Plain provinces, 1998 ^ 2020. Provinces Year Urban Industry Agriculture Total Increment and rural water use Beijing 1998 1224.00 1084.00 1739.00 4047.00 2010 1509.66 1366.93 1633.64 4510.23 463.23 2020 1780.31 1565.61 1551.16 4897.08 850.08 Tianjin 1998 485.00 619.00 1049.00 2153.00 2010 655.34 780.57 985.44 2421.35 268.35 2020 815.96 894.02 935.69 2645.66 492.66 Hebei 1998 2173.00 2700.00 17754.00 22627.00 2010 3195.61 3404.73 16678.32 23278.66 651.66 2020 4176.02 3899.59 15836.24 23911.85 1284.85 Shandong 1998 2445.00 4342.00 18656.00 25443.00 2010 3760.14 5475.30 17525.67 26761.12 1318.12 2020 5028.64 6271.12 16640.81 27940.57 2497.57 Henan 1998 2798.00 3693.00 16836.00 23327.00 2010 4234.89 4656.91 15815.94 24707.75 1380.75 2020 5618.07 5333.77 15017.40 25969.24 2642.24 Region 1998 9125.00 12438.00 56034.00 77597.00 2010 13355.64 15684.44 52639.02 81679.10 4082.10 2020 17418.99 17964.11 49981.30 85364.41 7767.41

88 H Yang, A Zehnder 5 Opening up new sources and economising on use Kaiyuan Jieliu, literally meaning `opening up more sources and economising on use', is a wise Chinese way (and may be wise in any culture) in dealing with resource shortage. In essence, opening up more sources involves measures on the supply side, whereas economising on the use of resources involves measures on the demand side. Over the years, the battle against water scarcity in the North China Plain has been carried out on these two fronts. In this section, we analyse the supply-side and demand-side measures and elaborate the impediments and trade-offs of these measures in dealing with the increasing water scarcity in the North China Plain. We will point out that, although these measures can help alleviate water stress, the cost can be high. An alternative perspective is needed in the search for a solution. 5.1 Supply-side measures By and large, supply-side measures include water construction and diversion projects, groundwater exploitation, and infrastructure maintenance and improvement, wastewater treatment and reuse, desalination and rainwater harvesting, etc. Of these measures, water construction and diversion projects have been the most used. Entering the 1990s, while small water project constructions stagnated partly because many small rivers in the north ran dry, large-scale water construction gained momentum. Investment from both central and local governments in water construction has increased (Huang et al, 1997). A number of megascale water projects have been launched or are about to kick off. The most renowned include: the Three Gorges Project in the middle reach of the Yangtze River, the Xiaolangdi Dam and the Wanjiazhai Water Project on the Yellow River, and the South ^ North Water Diversion Project. Of these megascale projects, the construction of the South ^ North Water Diversion Project is in many aspects the most profound and controversial. The detailed design of the project has been under intense assessment in the wake of President Jiang Zeming's remark: ``in order to radically alleviate the severe water shortage in the northern areas, building the South ^ North Water Transfer Project is necessary''. (2) The project is worthy of a brief description. Figure 3 illustrates the spatial location of the envisaged routes in the South ^ North Water Diversion Project. The Western Route diverts water from three upper-reach tributaries of the Yangtze River to the upper reaches of the Yellow River. The direct benefits of this route to the North China Plain are relatively modest. The Central Route involves diverting water from the Han River (a major tributary of the Yangtze) to the north. The long-term plan also considers diverting water from the Three Gorges Reservoir (behind the Three Gorges Dam, currently under construction). The destination of the Central Route is Beijing and Tianjin. Water-receiving areas also include Hebei and Henan. The Eastern Route diverts water from the lower reach of the Yangtze River to the north along roughly the ancient Beijing ^ Hangzhou Grand Canal. Waterreceiving areas are Beijing, Tianjin, the southern part of Hebei, and much of Shandong. It sounds exciting. However, it does not provoke any optimism. For one thing, water supply from the South ^ North Water Diversion Project would be available only about a decade after the project had been initiated. That means that even if the project starts now, it would be 2010 before water from it would become available. The imminent water shortage in the North China Plain urgently requires measures that can show results much sooner. The other reason that makes optimism inappropriate is that the share for irrigation from large water projects is small. Of all the large water projects currently under construction and planned, none is aimed at increasing irrigation. In the best case, irrigation gets only a residual amount of water (such as from the (2) Cited from Jiang Zeming's speech in Zhengzhou in June 1999 (Correspondents of China Water Resources, 2000).

China's regional water scarcity 89 0 2000 4000 6000 km Figure 3. Routes of the South ^ North Water Diversion Project. South ^ North Water Diversion Project). Priority has invariably been given to the municipal and industrial sectors. Two factors have made the residual position of irrigation inevitable. One is the return per unit of water use. In general, the economic return of each unit of water used in agriculture is low in comparison with that in the urban sectors. It makes economic sense to prioritise water supply to the urban sectors when the resource is in short supply. For example, in the total volume of 15 billion m 3 of water planned to be transferred through the Central Route of the South ^ North Water Diversion Project, the share for irrigation is only 2.95 billion m 3 (ZSN 1997). Even this small share may not be guaranteed. It is estimated that the economic benefit per unit of water used in the project for industrial and municipal sectors is 0.99 yuan m 3. For irrigation, the figure is 0.56 yuan m 3. In this case, there is an incentive for the water-receiving areas to use the water for nonagricultural activities. The second factor is related to the lower water price for irrigation. It provides an incentive for locals to divert water from irrigation to other sectors while paying the price for irrigation. In the case of the Central Route of the South ^ North Water Diversion Project, the average price for industrial water use is set at 0.31 yuan m 3. For agriculture, it is 0.06 yuan m 3 (ZSN 1997). Given the inferior economic return of water use in irrigation and the lower price of irrigation water, incentives for locals to divert agricultural water for other uses are strong. 5.2 Demand-side measures There is a long list of prescriptions for demand-side measures. They may, however, be generalised into four categories: (1) enabling conditions: including institutional reform, water rights, and privatisation of utilities; (2) market-based incentives: including water pricing, reducing subsidies, and water markets; (3) nonmarket incentives: including restriction, quotas, licences, pollution controls, and charges; (4) technical measures: including innovation and dissemination of water-saving technologies, canal lining, and leak detection. The actual measures used often vary depending on the natural and

90 H Yang, A Zehnder economic conditions in the local areas. Despite the variations, all these measures are aimed at making the use of available water more efficient. 5.2.1 Improving irrigation efficiency At the moment, the efficiency of water use in China is generally low at the level of water schemes. It is estimated that the efficiency of the irrigation network is only 40 ^ 50%. In the North China Plain areas, the efficiency is around 55 ^ 65% (Liu and He, 1996; Ministry of Water Resources, 1998). The low efficiency of water use has made many people believe that there is a large potential for water saving through better management and improvements in infrastructure. However, others have argued that the actual potential for water saving could be lower. This is because part of the water lost upstream through percolation and seepage returns to the hydrologic system and is available to downstream users. Although the potential for improving efficiency of water use may be large for individual water schemes, the potential for the whole water basin could be modest, as real savings could only be made from reductions in evapotranspiration and the flow to the ocean (World Bank, 1999). So far, little empirical research has been done to measure the actual loss of water to evapotranspiration and the potential for water saving at the water-basin level in China. In any case, we consider that the previously projected increase of 7 ^ 11% in irrigation efficiency should be possible. The question is what price farmers would have to pay for such an improvement. 5.2.2 Water prices Among various policies aimed at improving efficiency of water use, pricing mechanisms have been given priority. Many people have pointed out that the root cause of the inefficient use of water lies in the undervalued price of water. Although this may be true, the enthusiasm of local governments to exercise this mechanism may have another reason. Under the current institutional setting, water charges are placed directly on farmers. Local governments are the collectors of the charges. Increasing water prices often becomes a de facto source of revenue, though part of the fund may be used for water construction, infrastructure maintenance, and dissemination of technologies. The pricing mechanism is in contrast to the improvement in enabling conditions, such as institutional reform and water rights, which often mean devolving powers from higher level water authorities to lower level stakeholders, and ultimately to farmers. This may partly explain the slow progress in improving enabling conditions in water management, while increasing the price of irrigation water has been pushed forward rather rapidly in China. There are great variations in irrigation costs between crops and across regions. According to data from a household survey by the Ministry of Agriculture in 1997, the irrigation costs for wheat production in Shandong, Hebei, and Henan were 405 yuan ha 1,438yuanha 1, and 376 yuan ha 1, respectively. The shares of the irrigation cost in the total material cost (excluding the labour cost) were 9.82%, 13.4%, and 10% in the respective provinces. For corn the shares of the irrigation cost in total material cost in the above three provinces all exceeded 10% (Ministry of Agriculture, 1999). Is the current irrigation cost too high or too low? This is difficult to answer in the absence of water markets. It is, however, informative to make a comparison with other major grain-producing countries. Take the USA as a reference. In the statistics collected by the US Department of Agriculture, many states do not have figures for irrigation cost, implying that irrigation cost is a negligible proportion of the total cost. In the states where the irrigation-cost figures appear, the proportion of this cost in the total operating cost (roughly equivalent to the total material cost in China's statistics) is often no more than 2% (USDA, 2000). (3) As for grain production in the (3) The price of irrigation water in the United States is also undervalued, as Nickum (1998) pointed out.

China's regional water scarcity 91 EU countries and Canada, irrigation cost would account for an even smaller proportion because grain crops there usually receive sufficient rainfall and no irrigation is needed (Zehnder, 1999). In Australia, except for rice, grain production is generally a rain-fed activity. Hence, as far as the irrigation cost is concerned, the comparison suggests that grain farmers in the North China Plain are paying a relatively high price for irrigation, though this does not mean that the cost matches the market price, which could be much higher. In this case, increasing the price of irrigation water may further disadvantage the grain farmers in the region. 6 Shifting to water-efficient crops and opting for `virtual water trade' Empirical evidence shows that farmers are responsive to changes in water price. Given the relatively high proportion of irrigation cost in the total cost of grain production, increasing the price of irrigation water will have a significant effect on farmers' production decisions. One response would be to adjust the crop structure to increase the output value per unit of water used. In many areas, this means a shift from grain crops to nongrain crops. Many people have pointed out the economic rationale of the substitution of highvalue cash crops for grain crops in China. The argument has mostly been made on the basis of China's unfavourable land endowments (Ash and Edmonds, 1998; Lu, 1998; World Bank, 1997b). This study suggests that increasing water scarcity has further heightened such a rationale. During the past two decades the shift from grain crops to high-value crops has been a trend evident in many areas. Increasing the price for irrigation water will reinforce this trend. It is noteworthy that in recent years, a `three-high' (high output, high quality, and high efficiency) agricultural development strategy has been stipulated following several consecutive bumper harvests in grain production. Adjusting the agricultural structure to more lucrative crops, including vegetables, fruit, and other horticultural products, has been encouraged as a means of increasing farmers' incomes. However, one important point has been ignored in this strategy. That is its impact on water demand. Shifting to vegetables and horticultural products often means an increase in water use per unit of land. It is apparent that, if the irrigated area remains the same, shifting to high-value crops will lead to an increase in the use of water. In the North China Plain, it will lead to an acceleration of groundwater depletion when tapping additional surface water is difficult. In order to halt the acceleration of water-resource depletion in the North China Plain, therefore, not only the projected water demand, but also the increased water use for high-value crops need to be met. The challenge is daunting. The above analysis of demand-and-supply measures suggests that, until the South ^ North Water Transfer Project is completed possibly sometime in the second decade of this century, the increase in water supply in the region could only be marginal. Even the completion of the project may not help much in agriculture because of the sector's lower water use value in comparison with nonagricultural sectors. On the demand side, the analysis suggests that the measures for improving the efficiency of water use also encounter various impediments and involve trade-offs. If we count all these factors, it is clear that a new perspective is needed in dealing with water scarcity in the years to come. Given the low water-use value in grain production and the increasing water scarcity in the North China Plain, a reduction in irrigated areas in grain production should be considered. Currently, the average water use on irrigated land is about 4500 ^ 6000 m 3 ha 1 in the region (Ministry of Water Resources, 1998). The average yield of grain on the irrigated land is around 6000 kg ha 1. This gives a rough ratio of

92 H Yang, A Zehnder 1 kg grain to 1 m 3 water. (4) If an additional 10 million tonnes of grain can be produced in other regions or imported from the international market, instead of being produced in the North China Plain, about 10 billion m 3 of water can be saved in the region. This volume would cover the projected increment in water demand of 3.2 billion m 3 in the coming decade in the region, as well as supporting the shift to high-value crops. Winter wheat is likely to be the crop affected most by the reduction in irrigated areas. The total output of winter wheat in the North China Plain amounts to 55 million tonnes. The crop is planted in October and harvested the next June. During its growing period rain is scarce. Production is heavily reliant on irrigation. Thus, reducing irrigated areas for winter wheat can effectively reduce the amount of water used. Considering the high intensity of land use in southern regions and the fragile natural environment in the northwest, the bulk of the reduced wheat output may need to be imported from the international market. Currently, China imports around 10 million tonnes of wheat, though the actual figure fluctuates from year to year. This volume accounted for roughly 10% of the total wheat traded on the international market in the early 1990s (World Bank, 1997b). If China increases wheat imports, it could have an influence on the international market. However, many people have pointed out that the world market will respond to China's demand by increasing supply. The impact of China's increase in imports on international prices will be dampened. One major concern about the increase in grain imports in China is food security. It is interesting to notice that many Western economists believe that this concern is unnecessary. Most Chinese themselves, on the other hand, consider that China needs to maintain a relatively high self-sufficiency in grain (around 95%). There has been an intense and sometimes emotional debate on the issue. However, with the increasing integration of the Chinese economy into the world economy and particularly its eventual entry into the World Trade Organisation, it will become increasingly difficult and costly for China to block imports of grain from international markets. In fact, as many studies have projected, an increase in grain imports is almost inevitable (Huang et al, 1997; Lu, 1998; Yang, 1999). In this case, it would be wise for China to opt for the `virtual water import', as it is termed by Allan (1996). This is not only because it can effectively alleviate water stress in the North China Plain, but because it also conforms with the general direction in which the Chinese economy is heading. Thus far, little has been said about the role of corn production in dealing with water stress and food security. Genetically, corn has a higher efficiency of water utilisation than wheat. As reported by Liu and He (1996), in the North China Plain, the average efficiency of water utilisation for wheat is 1.2 kg m 3. For corn, the figure is 1.96 kg m 3.The growing period of corn is between May and October and coincides with the rainy season in the region. Relatively less irrigation is needed to grow corn. With the increase in incomes, the demand for corn as feed grain has been rising. The North China Plain has relatively favourable natural conditions for corn production. At the moment, the average yield of corn in China is only half of the average of industrial countries. The potential for increasing yield is high (World Bank, 1997b). (5) Hence, from the points of view of efficiency of water use and marginal return to inputs, more emphasis may be placed on corn in the North China Plain. Given the fact that corn is also one of the staple food grains in China, expanding the growing of corn may, to some extent, buffer the effect of international market volatility on the domestic grain supply and security. (4) This is a fair approximation as removing irrigation does not lead to zero yield on that land. (5) In contrast, the same source shows that the average yield of wheat in China is almost the same as the average of industrial countries.

China's regional water scarcity 93 7 Concluding remarks In this study we have highlighted China's regional water scarcity and the depletion of water resources in the North China Plain. An increase in water demand and an aggravation of the deficit were projected in the next two decades. Impediments and prospects of conventional measures in dealing with water scarcity were examined, and the measure of virtual water import was proposed. The study suggests that China has a serious regional problem of water shortage. The North China Plain provinces are enduring severe water stress. The potential for tapping additional surface water is only marginal. The overexploitation of groundwater for irrigation has caused rapid depletion of aquifers. The projection shows that, even if the improvement in efficiency of water use in different sectors can maintain pace in the 1980s and 1990s, water demand in the North China Plain will still increase by approximately 4 billion m 3 in 2010 and 8 billion m 3 in 2020 over the base year of 1998. The analysis of supply-side and demand-side measures suggests that maintaining the pace of the improvement in efficiency of water use is difficult. The potential for increasing water supply is only marginal before the completion of the South ^ North Water Transfer Project sometime in the second decade of this century. It is also expected that agriculture will gain little from this project because of its low value of water use. The proportion of irrigation cost in total grain production cost has been relatively high in the North China Plain in comparison with other major grain-producing countries. Increasing prices of irrigation water could further reduce the competitiveness of grain production. Substituting high-value cash crops for grain crops could help to increase the value of water use. However, if the irrigated areas remain the same, the shift itself would mean an increasing use of water for irrigation. The result is an aggravation of water scarcity and resource depletion. In this study we have proposed an alternative measure to deal with water scarcity in the North China Plain. That is to reduce the irrigated areas. The reduced grain output can be compensated by importing from outside. This virtual water import option is likely to lead to an increase in wheat imports. But given China's comparative disadvantage in grain production and its continuous integration into the world economy, the increase in grain imports is inevitable. Policies dealing with water scarcity should take this trend into account. Expanding corn production is also worthy of consideration. The increasing demand for feed and the higher efficiency of water utilisation favour corn over wheat in the North China Plain region. In any case, the development of interregional and international cooperation and market integration, as well as the relaxation of international political tension will continuously raise the feasibility of the virtual water trade to deal with China's regional water scarcity. References Allan T, 1996 Water, Peace and the Middle East: Negotiating Water in the Jordan Basin (IB Tauris, London) Ash R, Edmonds R, 1998, ``Land resources, environment and agricultural production'' The China Quarterly number 156, 836 ^ 879 Brown L, Halweil B, 1998, ``China's water shortage could shake world food security'' World Watch number 7/8, Online; www.worldwatch.org Bureau of Hydrology of the Ministry of Water and Hydroelectricity, 1987 Water Resource Assessment in China (Water and Hydroelectricity Press, Beijing) Chen M, Ruijiu L, Yulong L, 1999, ``China's grain issue in the 21st century'' Journal of Hydraulic Engineering number 1, 2 ^ 5 Conrad S, Drennen T, Engi D, Harris D, Jeppesen D, Thomas R, 1998 Modeling the Infrastructure Dynamics of ChinaöWater, Agriculture, Energy, and Greenhouse Gases. Sandia Report SAND98-1715, Sandia National Laboratories, Albuquerque, NM