Ecological Economics of Water in China: Towards A Strategy for Sustainable Development

The main purpose of this paper is to analyze one important part of the emerging environmental problems in China--- water pollution. The importance of water for any nation is obvious. In case of China it acquires particular salience because of China’s industrial needs as well as human needs. Particularly significant is the rapid deterioration of the water quality and development of water shortages. Unless effective policy interventions are made quickly, this can develop into a major ecological disaster. We present arguments for taking the water resources problem in China seriously. The continuing and rapid deterioration of water quality poses grave health and other types of environmental threats. If these threats are not addressed in a timely manner, the situation will deteriorate even faster. The Chinese 11th five year plan acknowledges many of these problems. The analysis in this paper is consistent with the stated objective of addressing ecological issues via a new development strategy. We consider the institutional and policy-making issues carefully. The complexities of the water resource administration system in China are challenging. Coordination among WMR, SEPA, MOC, MOA, SFA, MoC, MOH and many other branches of the government will tax even the most sophisticated administrative apparatus. Clearly some simplification and streamlining is called for. At the same time, decentralization--- with proper incentives and monitoring mechanisms--- that gives more resources at the local level to fund defensive measures can improve performance on the ground. In the age of globalization, at least a significant part of China’s environmental problems stem from FDI-led production for export markets. Many enterprises have lax environmental management practices. This, of course, applies to many domestic SOEs as well. In all these cases, both market incentives such as effluent fees and better regulations with proper enforcement are needed. Regional and International cooperation and sharing of responsibilities are necessary parts of an overall policy package.