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The Looming Threat to China's Economy

October 1st, 2013

by Marianne Brunet

The debate over China’s economic prospects centers on its real-estate bubble, excessive leverage and rising labor costs. But regardless of its short-term fate, China’s economic growth will ultimately be limited by the availability of a key resource. China ranks second lowest in the world for water availability per capita. Water-scarcity poses a threat to its future growth. The challenge is determining how severe this will be.

China has 22% of the world’s population but only 6% of its fresh water, according to Gave Kal Dragonomics (GK), a Beijing-based firm that provides in-depth research on China’s economic, political and social developments. .

Water scarcity continues to worsen, partially as a result of China’s geography. China’s south is wet (holding approximately 80% of the country’s water resources) but mountainous, while its north has broad plains but little water. The terrain makes it difficult to design effective solutions.

GK has argued that unsustainable water supply to the densely populated North China Plain poses the greatest threat to China’s economic health. Ongoing inefficient agricultural water use and industrial pollution are exacerbating shortages. Water scarcity will undoubtedly inflict economic stress on China.

Before we look at China’s current water crises, it’s important to understand the historical context in which water-scarcity issues must be addressed. Fundamentally unstable resources have always been a defining feature of Chinese politics. China has a rich history of dealing with water and agricultural crises.

Historical Chinese water crises

Many crises facing the current regime – and many of the ways in which the regime has reacted – have deep precedent in Chinese history. The current issue can be illuminated, at least to some degree, by a look into the past.

North China is very dry, and has historically been unable to meet its own population’s basic food needs. The Yellow River, flowing as it does through the fine loess soil of the North China Plain, is extremely prone to rapid changes of course and severe flooding. The perpetual, twin menaces to North China are its paradoxical aridness, which makes it unable to support high-yield agriculture, and the tendency of its major waterway to wipe away entire regions during floods.

These threats have caused some of the most catastrophic natural disasters in history – disasters that weakened dynasties and led to massive unrest. The collapse of the Mongol Yuan Dynasty (1279-1368) was due in large part to the social and military upheavals triggered by Yellow River floods in the last decades of its rule. Similarly, the Qing Dynasty (1644-1912) and the Nationalist Chinese regime (1927-1949) both saw their already threatened rules put under unprecedented strain by some of the most catastrophic floods and famines in recorded human history.

This historical cycle of adversity suggests that the water-related challenges facing modern China will ultimately prompt massive economic stress. The current Chinese government’s response to these threats could dictate its fate.

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