Thirsty China Its key resource constraint is water Investment strategy Summer 2006 Thirsty China Contents This report was written by Executive summary........................................................................... 3 Andy Rothman, CLSA’s China Macro Strategist
[email protected] . nor any drop to drink .................................................................. 4 (8621) 23066000 Julia Zhu provided research assistance Paying a hefty price .........................................................................16 Solutions to avert a crisis ................................................................23 Impact on the investment environment ...........................................36 Water and other key commodities This January 2006 Blue Book examined Our spring 2005 investment strategy the global freshwater scarcity problem detailed China’s appetite for commodities 2
[email protected] Summer 2006 Executive summary Thirsty China Thirsty China We all know that a lack of natural resources constrains China’s ability to continue its blistering pace of growth. But, with our focus on globally traded commodities, we have neglected the biggest resource constraint: water. China has about one-quarter of the average per capita water supply in the world, and 136 of its cities face severe water shortages. The problem is especially bad in the north of the country, where the 43 million people of Beijing, Tianjin and Shanghai each have access to less water per capita than residents of Yemen, Jordan or Israel. Intense levels of pollution aggravate the shortage. More than half of China’s rivers are too polluted to serve as a source for drinking water, and one- quarter are so polluted they cannot even be used for industry or irrigation. The impact is clear. Water shortages have reduced industrial output by an average of US$25 billion per year, and agricultural output by US$19bn, according to the Chinese government.