VOL. 19 , NO. 1

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WATER RESOURCES BULLETIN AMERICAN WATER RESOURCES ASSOCIATION FEBRUARY 1983

CHANGES IN WATER POLICY M THE PEOPLE’S REPUBLIC OF CHINA’

Lester Ross2

ABSTRACT: Ideology has predisposed the People’s Republic of China against the use of prices to allocate water. Prolonged drought in north China has made the Chinese more aware of their unfavorable water re- source inventory and the expense of expanding supply. Therefore, as part of the economic liberalization commenced since the death of Ma0 Zedong, China has started to make more active use of pricing to regulate demand and reduce the need for supply expansion. (KEY TERMS: water policy; water supply; China; People’s Republic of China.)

The People’s Republic of China has been very reluctant to use prices to regulate water usage. Water instead customarily has been provided on a flat rate basis that provides no incen- tive for conservation. A major change has begun in the last few years, however. Severe drought in the north China plain including the politically important cities of Beijing and Tianjin has brought home the precarious balance between supply and demand. The drought along with the enhanced prominence of economics as part of the current modernization drive have been sufficient to overcome many objections to prices based on ideology, social equilization, and lack of technology. China’s cabinet recently committed the country to the introduction of metering and usage sensitive pricing alongside other conserva- tion measures. In this article I rely on Chinese press reports to analyze the reasons behind these developments and the ac- tions taken so far.

THE CONTEXT Geography, demography, and economics create the context

for China’s water supply problem. On a nationwide basis China’s annual rainfall averages 630 mm, about 21 percent below the global mean. A better indication of potential water supply is stream flow which averages 2.7 trillion m3 annually. However, China has the world’s largest pcpulation estimated at 980,000,000 pending the results of the 1982 census, China’s first in almost 20 years. On a per capita basis stream flow is only 2,700 m3, just over one-quarter the global mean. There- fore water management is of greater urgency than in most other countries.

TABLE 1. Water Resources and Usage in the People’s Republic of China.

Source Volume in Billion m3

RESOURCE Stream Flow 2,700 Ground Water Recharge 700

TOTAL USAGE 3,400

USAGE Surface Water 410 Ground Water 50

TOTAL 460

Sources: Guangming Ribao, 9 October 1981; Renmin Ribao, 21 Sep tember 1981.

Surface water is also unevenly distributed seasonally, geo- graphically, and from year to year. The climate is monsoon continental with rainfall in most of the country concentrated in the summer. Low rainfall years affect both autumn harvests and spring planting.

There also is an acute geographical imbalance in moisture levels. The west and north are very dry with rainfall generally increasing towards the south and east, encouraging the histori- cal movement of Chinese civilization. Although much of northern and western China are regions of low population and economic activity, this is not true of the north China plain. The Hai, Liao, and Huai Rivers in the east drain 28 percent of the country’s surface area but have only 4 percent of the stream flow. The Hai River watershed with tributaries drains 10 per- cent of China’s farmland and serves 90,000,000 people with only 1 percent of the stream flow.

THE PROBLEM Population and economic activity have increased in north

China without sufficient regard for the availability of water. In Beijing population has increased to 9,000,000 in the greater

‘Paper No. 82090 of the Water Resources Bulletin, Discussions are open until October 1, 1983. 2Assistant Professor of Politid- Science, Purdue University, Dept. of Political Science, 106 Recitation Bldg., West Lafayette, Indiana 47907.

69 WATER RESOURCES BULLETIN

Ross

municipality (5,000,000 in the city proper) and major in- dustrial complexes like the Shoudu Iron and Steel Works and the Beijing General Petrochemical Works have been established even though water resources are far from abundant. Disregard for water supply is not an exception because environmental impacts and infrastructural requirements are often slighted in the planning process.

An additional complicating factor is the strong emphasis placed on national and local self-sufficiency in agriculture. China stresses grain self-sufficiency to feed her huge population while minimizing foreign dependence and the need for inland transportation. This was particularly true while Mao Zedong was alive but still remains a factor today. The result is the high priority attached to agriculture especially irrigated grain farming even in arid regions. Agriculture of course is the single largest user of water accounting for 87 percent of consumption nationally.

Beijing’s circumstances are particularly precarious. Since 1949 pipelines have been extended to bring in water from the surrounding area, increasing surface water supply by more than 40 percent. More than a score of reservoirs have been con- structed to store water. However, over 80 percent of currently recoverable runoff and annual ground water recharge is now used. In several areas the ground water aquifers are being rapidly depleted. In 30 years the water table has declined by up to 30 m lowering water quality and causing land subsidence in a 1,000 km2 cone (Renmin Ribao, 12 August 1981 and 21 March 1982; JPRS 79324, 28 October 1981: 1-2).

Under ordinary circumstances there would currently be a slight margin of supply over demand. However per capita resi- dential usage is now a very low 140 liters per day. If the economy develops as expected this could more than double by the year 2,000 while population also continues to increase albeit at a very modest rate. Therefore substantial additional supply will be needed unless other factors change.

Of far more immediate consequence is the major drought which has afflicted north China since 1980. Beijing’s rainfall is reported to average 635 mm annually although some feel that this overstates precipitation by as much as 15 percent (FBIS 5 5 , 22 March 1982:Rl). However, during the drought of 1980-82 rainfall amounted to well under 400 mm annually. By now many of Beijing’s reservoirs are no longer able to sup- ply water to their consumers and many users have been forced to curtail consumption. The situation is even more precarious in Tianjin which has a population of 8,000,000 in the metro- politan area but a much less extensive water supply network.

The drought has led to a pressing search for solutions to the water supply problem. There are three types of solutions: bureaucratic, exhortational, and market. Bureaucratic solu- tions consist of the expansion of supply or restriction of de- mand through administrative orders. Exhortational solutions are normative appeals to water users to reduce consumption. Market solutions rely on prices and material incentives to balance demand and supply.

BUREAUCRATIC SOLUTIONS Until recently China’s preferred solution was bureaucratic.

Water was provided on a flat rate basis and supply was con- tinuously expanded to satisfy ever increasing demand. Costs were very low. Residential customers in Beijing pay as little as 0.2 yuan (2 yuan -US $1) per person per month for water utility service regardless of consumption. Customers frequent- ly pay a joint institutional service charge rather than individual charges. Metering of usage is rare (Renmin Ribao, 12 August 1981).

Meanwhile supply has been increased dramatically to satisfy growing demand. Nationally, municipal water supplies have increased 20 times since 1949 but still lag behind demand by an estimated 8,800,000 tons (FBIS 214, 5 November 1981: K6). Some 86,000 reservoirs have been built with storage capa- city of 400 billion m3 (Beijing Review, 5 October 1981 :20). In Beijing piped water sales have increased by 45 times in the city proper and more than 100 times in the greater metropoli- tan area over the same period and there have been comparable increases in Tianjin (Renmin Ribao, 21 September 1981; Zhu, 1981). There have also been major increases in rural areas in- cluding the drilling of thousands of tube wells in the north China plain in the 1970’s.

Additional increases in supply are entirely possible. This is particularly true for ground water since only 6.9 percent of estimated anilual recharge is currently utilized nationally. However, the prospects are less favorable in the arid north China plain. Over half of proven annual ground water recharge that is close to the surface is already being utilized. As noted earlier in some localities the water table is falling and land sub- sidence is noticeable because of unregulated pumping (Renmin Ribao, 3 June 1982).

Projects to divert and store additional water for use in north China are in various stages of planning and construction. The billion dollar Luanhe R. project is now underway in northern Hebei to expand Tianjin’s supply. In the interim, Tianjin was granted permission in late 1981 to divert some silt laden Yellow River water north from Shandong but this is only a stopgap measure given the water’s low quality and the needs of agriculture and the provincial capital, Jinan (Zhang, 1982). Far more ambitious planning is underway to divert water north from the Yangtze Valley over 1,000 km away in central China. Several proposals that may have engineering feasibility are now being evaluated by China with international advice. However, the construction costs are enormous and the environmental impacts including the consequences of with- drawals for the donor river systems have yet to be fully exa- mined. Furthermore, although China is a dictatorship, its economy in many ways is cellularized with considerable local compartmentalization. It is unclear whether interbasin trans- fers of such large magnitude are politically feasible. Even the Luanhe R. project involving Tianjin and neighboring Hebei re- quired extensive interjurisdictional bargaining (Renmin Ribao, 18 July 1982).

Even more problematic is the high cost to the government as water supplier resulting from bureaucratic augmentation of supply. Because of flat rate charges additional increments of

70 WATER RESOURCES BULLETIN

Changes in Water Policy in the People’s Republic of China

water are cost free to the consumer. Supply must continuously expand in an unending effort to satisfy demand.

Of course, administrative orders can also be used to restrict consumption or to reallocate supplies among consumers. This has frequently occurred during the drought. For example Tianjin mandated a 30 percent reduction in residential and industrial usage in 1980 (Zhu, 1981). In the agricultural sector there now is a belated effort to improve irrigation management (JPRS 79575, 2 December 1981 :29-32); Renmin Ribao, 3 July 1982).

EXHORTATION

Such consumption cutbacks commonly are linked with moral exhortation to reduce consumption. Moral exhortation is quite common in China under ordinary circumstances and is intensified in times of crisis. Rallies to conserve water were held in Beijing in 1981 on the 28th of August and again in November when no break in the drought occurred. Substantial reductions in consumption have been reported as a result of bureaucratic and exhortational measures. The cities of Dalian and Shanghai both were able to reduce consumption slightly while also managing small increases in industrial production (Renmin Ribao, 8 January 1982). Qingdao on the Shandong coast claimed to have cut water consumption in half while avoiding service interruptions in the midst of its 100-year drought by a mixture of conservation, drilling more wells, and using sea water for certain purposes (Renmin Ribao, 7 April 1982).

Regardless of how successful these reductions may have been, their effectiveness is likely to diminish as time passes especially once the drought eases. Even now the Chinese press regularly reports that enterprises ignore injunctions to conserve water because volume of production and profit are more com- pelling norms (Renmin Ribao, 12 August 1981; JPRS 79324, 28 October 1981: 1-2). This tendency may become even more apparent because of the widely noticed rise of political apathy and changing morality especially among the younger genera- tion.

MARKET

Market solutions as noted earlier have generally been dis- paraged in China. Imperative planning is regarded by many ideologues as the hallmark of a socialist economy eliminating the need for prices and unseemly calculation of self-advantage. Over the last several years, however, market methods have again come into vogue as a means to spur economic develop- ment. Enterprises have been accorded greater autonomy, the planning process has been simplified, material incentives are scorned less often, and rural trade fairs have been reopened. On the other hand, objections to markets have been renewed in the face of inflation, unemployment, declines in the pro- duction of strategic commodities like grain, and a general loss of power on the part of the authorities. Therefore the primacy of planning was reasserted in January 1982 while markets for- mally have been relegated to auxiliary status. The role of

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markets nevertheless has increased dramatically in recent years.

As the severity of the drought worsened, markets have been more widely employed in the water supply sector. First the major cities in north China, Beijing and Tianjin, separately decided to phase out flat rate service charges. Meters are now being hurriedly installed in major enterprises and residential complexes, the threshold being variously reported as 10,000 tons or 50,000 tons per month (FBIS 167, 28 August 1981: R1-2; Renmin Ribao, 8 January 1982).

Rather than adopt a constant rate price schedule, the pri- mary emphasis has been placed on calculating usage norms. These norms are intended to reflect prudent yet ordinary usage volumes. Then consumption above the norm is priced from two to five times the service charge for below norm consump- tion, in effect a form of incremental block pricing (Renmin Ribao, 4 October 1980). Conservation and recycling are en- couraged in this fashion while social equality is maintained with low flat rates for ordinary consumption. It isunclear how the usage norms and price differentials are determined, and how finely they discriminate between classes of users. An ad- ditional problem affecting the metering of residential con- sumers is communal bathrooms and kitchens which reduce the incentive for any single household to conserve. In general, however, newer facilities with more modern technology are expected to have lower usage norms than older facilities.

Although full information is lacking there are several en- couraging reports on the pricing systems. In Tianjin the drought led municipal authorites to adopt usage norms in con- junction with administrative controls on consumption after obtaining favorable results from test sites (Renmin Ribao, 25 October 1981). The Railroad Construction Bureau resi- dential complex reported that usage declined by 75 percent and average service charges also fell after individual meters and block pricing were introduced (FBIS 170, 2 September 1981: R3). Although such impressive results likely are exceptional, they do not lie much outside the elasticity range of -0.2 to -0.7 found for residential customers in the United States (Morgan, 1980:942).

Once major cities in the drought affected areas acted, the State Council or cabinet in October 1981 ordered an end to flat rate pricing throughout the country. The State Council’s decision reflected recognition that China’s water supply prob- lem was not confined to the short term effects of the drought but was more long term in nature. Although supply must be increased, pricing reforms would give consumers an incentive to recycle and conserve and thereby better reflect the scarcity value of water (Renrnin Ribao, 5 October and 8 November 198 1).

Following action by the State Council, major conferences were convened in Dalian, Liaoning, and Hefei, Anhui, for northern and southern cities, respectively. Those in attendance agreed that conservation must precede expansion of supply, and that pricing reforms were important means to prevent water shortages. However, many of those present at the Hefei conference conceded that they would have a harder time than their northern counterparts gaining public acceptance (Renmin

WATER RESOURCES BULLETIN

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Ribao, 22 December 1981; FBIS 233, 4 December 1981: K10-11 and 235,8 December 1981:K10-11).

TABLE 2. Water Supply in Beijing.

Resource Volume in Million m3

Source

Surface Water -

Local Sources Outside Areas

Ground Water

TOTAL

Recoverable Water

Surface Water Ground Water

TOTAL

Usage in 1978

Agriculture Industry Residential

TOTAL

4,487 2,572 1,915

2,500

6,987

3,000 2,500

5,500

3,000 1,350

280

4,630 ~~~~ ~ ~

Sources: Renmin Ribao, 28 November 1981 and 2 February 1982; JPRS 79347,2 November 1981:49-52.

required although market solutions should reduce and slow down the need for new supplies. Finally, political opposition may yet arise in response to the wider use of markets.

LITERATURE CITED

Beijing Review. Beijing. Flack, D. Ernest, 1978. Management Alternatives for Reducing De-

mand. In: Municipal Water Systems: The Challenge for Urban Re- source Management, David Holtz and Scott Sebastian (Editors). Indiana University Press, Bloomington, Indiana.

Foreign Broadcast Information Service (FBIS). Daily Report: People’s Republic of China.

Guangming Ribao. Brilliance Daily, Beijing. Joint Publications Research Service (JPRS). China Report: Agriculture.

Springfield, Virginia. Morgan, W. Douglas, 1980. An Economist’s View of Demand Projec-

tions Considering Conservation. Wafer Resources Bulletin 16(3):

Renmin Ribao. People’s Daily, Beijing. Zhang, Nan, 1982. Divert Huanghe River Water to Tianjin. Beijing Re-

Zhu, Laidong, 1981. Tianjin Shi de Shui [Water in Tianjin Munici-

94 1-943.

view 25 (23 A~gust):19-25.

pality]. Dili Zhishi Geographical Knowledge (November):5-6,29.

CONCLUSION

Ideology has predisposed China against the use of markets to run the economy or public policy. However, an unfavorable water resource base aggravated by severe drought has led to changes in policy instruments. Although expansion of supply is essential, more emphasis now is placed on metering, usage sensitive prices, and improved management in conjunction with administrative norms to encourage conservation and re- duce demand. These changes have been endorsed at the highest levels of authority. The new instruments seem more likely than ideologically preferred alternatives to reduce de- mand and slow the construction of more extensive storage and distribution networks.

One must caution, however, that market solutions have been introduced recently. The speed at which metering can be ex- tended and the quality of management are uncertain. Further- more, the high hopes placed on metering andincremental block pricing may be exaggerated. Since individual metering will be costly to install and difficult to monitor group meters are likely to be widespread creating problems of group incentives and mutual supervision. Some exhortation will continue to be required. Many localities may not respond as well as the Tian- jin Railroad Construction Bureau, and even the latter’s usage is likely to increase once the initial shock of higher prices has been absorbed although usage should still remain lower than it would have been otherwise (Flack, 1978:202). Further- more, utility companies which are owned by the state may re- quire additional rate making assistance if their sales decline too precipitously. China’s present consumption also is very low. As the economy develops additional water supplies will be

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