The US - China's Foreign Trade Relation and

China's Water Scarcity Issue

by: Aryati Dewi Hadin

Master-1 LEA Spécialité Langues, Culture, Affaires Internationales
parcours Asie-Pacifique-Chinois, l'Université de La Rochelle
 The US - China's Foreign Trade Relation and
China's Water Scarcity Issue
by: Aryati Dewi Hadin
Master-1 LEA Spécialité Langues, Culture, Affaires Internationales
parcours Asie-Pacifique-Chinois, l'Université de La Rochelle

Abstract:
This paper aims to find a relation between China's water issue and the U.S – China
foreign trade relation. By reviewing literatures, this paper describes how water scarcity
in China can impede the U.S – China foreign trade relation focusing on trade goods such
as computer, electronic equipment, textile and cotton.

Keywords: U.S. - China trade relation, water pollution, water scarcity, industry, export,
import

_____________________________________________________________________________________________________

Introduction

Over the past thirty years, U.S.-China economic ties has significantly expanded.
According to United States Census Bureau in November 2013, total U.S.- China trade
rose from $5 billion in 1981 to $403.5 billion in 2013 1. Today, China is the United States'
second largest trading partner, it's third largest export market, and its biggest source of
imports. As reported by CRS Report for Congress in December 2013, many U.S.
companies see that participating in China's market may give them tremendous benefit.
For example, General Motors (GM) sold more cars in China than in the United States
after investing in China. Importing low-cost goods from China benefit U.S. Consumers in
as well. American firms that use China as the final assembly for their products or use
Chinese-made inputs for their production in the United States are able to reduce their
production costs2.

In order to reach 7.5 percent economic growth target per year, industrial growth
1
"Top Trading Partners September 2013." United States Census Bureau. United States Census Bureau, n.d. Web. 10 Nov
2013. <http://www.census.gov/foreign-trade/statistics/highlights/top/top1309yr.html>
2
Morrison, Wayne M. "China-U.S. Trade Issue." CRS Report for Congress (2013): ii. Web. 16 Dec. 2013.
<http://www.fas.org/sgp/crs/row/RL33536.pdf>.
is one of China's important economic emergence factor. According to statistic reported
by Trading Economics in November 2013, export is a major component supporting
China's economic expansion. Exports of goods and service uphold 30 percent of their
GDP3. By 2012, China major exports to U.S. are computers, telecommunication
equipment, textile, and cotton 4.

However, environmental problem can impede China's industrial growth. One of

China's biggest environmental problem is water issue. China's economic development
still depends on extensive use of natural resources. The most used natural resources is
water. The rapid economic and population growth creates a serious pollution through
5
ineffective surveillance of wastewater discharge and increases water demand .
Unfortunately, the demand exceeds the water supply.

Through reviewing some literatures, this essay will analyze how China's water
problem impedes U.S. - China's trade relation on computer, electronic equipment, textile
and cotton.

The Current Situation of Water Scarcity in China

The need for water resources in China is increasing, driven by the continuing
economic and population growth. The growing water demand—combined with limited
supplies and the deteriorating water quality—expresses that a severe water scarcity
crisis is emerging.

Referring to The World Bank's report in 2009, China’s water productivity of

$3.60/m3 is low in comparison with the average of middle-income ($4.80/m3) and
high-income ($35.80/m3) countries. This gap is largely caused by differences in
sectoral structure and efficiency of water consumption. The sector with lowest water
productivity is agriculture.

Today, China is suffering from loosing half of its rivers. As reported by The
Economist in October 12th 2013, the number of rivers with significant catchment areas

3
"China Exports." Trading Economics. Trading Economics, 10 Nov 2013. Web. 27 Nov 2013.
<http://www.tradingeconomics.com/china/exports>.
4
"U.S. Imports from China by 5-digit End-Use Code 2003-2012." United States Census Bureau. U.S. Departement of
Commerce. Web. 27 Nov 2013. <http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c5700.html>.
5
Xie, Jian. "Water Scarcity in China: Current Situation." Addresssing China's Water Scarctiy: Recommendations for
Selected Water Resource Management Issues. (2009): 22. Web. 10 Nov. 2013. <http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2009/01/14/000333037_20090114011126/Rendered/
PDF/471110PUB0CHA0101OFFICIAL0USE0ONLY1.pdf>.
has now fallen from more than 50,000 in the 1950s to 23,000 6. The water table under
the capital has dropped by 300 meters (nearly 1,000 feet) since the 1970s7.

The water recycle level is very poor. Agriculture sector creates extensive waste in
irrigation system, and it is considered as 65 percent of total water withdrawals. In
industry, which accounts for 24 percent of China's water withdrawal, water recycling
level is 40 percent on average compared to 75-85 percent in developed countries 8. As
reported by The Economist in November 2013, only about 40 percent of water used in
industry is recycled, half as much as in Europe. The rest is dumped in rivers and lakes.9

The water scarcity becomes more serious due to increasing extensive pollution,
spreading from the coast to the inland areas and from the surface to the underground
water resource. The wastewater discharge increases from 53.7 billion tons in 2006 to
68 billion tons in 2012, consists of municipal wastewater (62 percent) and industrial
wastewater (38 percent) respectively. The top 6 provinces of total wastewater
discharged are Guangdong, Jiangsu, Shandong, Zhejiang, Henan and Fujian, accounting
for 45 percent of domestic wastewater discharge in 2011. The top 4 wastewater
discharge industries are steel, chemicals, paper manufacture leather, and
pharmaceuticals10. Wastewater discharge makes more than a half of groundwater in the
north China cannot be used for industry.

Water Resource Management in China

China's government is well aware of this water scarcity, and has committed to
solve the problem by including it to the government's action plan. The 11 th Five Year
Plan (FYP) 2006-2010 set a number of policy goals and priorities. It gave emphasis to
the the need for improving the water resources management by adopting better
management pattern, shifting from supply to demand management, integrating river
6
"All Dried Up." The Economist. 12 Oct 2013. Web. 10 Nov. 2013.
<http://www.economist.com/news/china/21587813-northern-china-running-out-water-governments-remedies-are-
potentially-disastrous-all>.
7
"Water In China: Desperate Measures." Economist. 12 Oct 2013: n. page. Web. 10 Nov. 2013.
<http://www.economist.com/news/leaders/21587789-desperate-measures>.
8
Xie, Jian. "Water Scarcity in China: Current Situation." Addresssing China's Water Scarctiy: Recommendations for
Selected Water Resource Management Issues. (2009): 22. Web. 10 Nov. 2013. <http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2009/01/14/000333037_20090114011126/Rendered/
PDF/471110PUB0CHA0101OFFICIAL0USE0ONLY1.pdf>.
9
"All Dried Up." The Economist. 12 Oct 2013. Web. 10 Nov. 2013.
<http://www.economist.com/news/china/21587813-northern-china-running-out-water-governments-remedies-are-
potentially-disastrous-all>.
10
"Wastewater Treatment Industry Report China 2013." Research And Markets. Oct 2013: n. page. Web. 27 Nov. 2013.
<http://www.researchandmarkets.com/research/fstvcd/wastewater>.
basin to regional management, and set up a preliminary system of water rights trading.
According to this plan, the total water consumption for agriculture was expected to be
constant, with the effective water-use coefficient 0.5. For industrial sectors, the target
was to reduce water consumption per unit of industry added value by 30 percent. For
urban sector, the focus was on improving water-savings measures.11

Nevertheless, the implementation of water resource policies failed. The most

significant failures on China's water management policy were underdeveloped system
of water rights administration, excessive focus on water supply rather than water
demand management, an excessive reliance on administrative measure rather than
market-based instruments, insufficient financing for pollution control, and low level of
pollution charges.

The water rights administration system in China is very weak. First, the rights of
water ownership are not very clearly defined. Second, there is no link between the
amount of water authorized for use and the overall water resources allocation plan
based on water balance analyses at the river-basin level. Third, the current water rights
administration system does not cover all water users. Fourth, there are no specific
regulations on conditions, procedures, and operating guidelines for water transfers.
Finally, there are some technical barriers to effective water rights administration in
China. For example, China lacks facilities for measuring water use, especially
groundwater use. Its current approach is completely based on measuring water
withdrawals from surface and groundwater sources, rather than “real” water use.

China’s policies were more focused on meeting the demands for water by
increasing supply rather than managing the demand. In order to increase water supply
to meet the ever growing demands from economic activities and domestic uses, China
built many reservoirs, dug wells to pump groundwater, built canals to transfer water,
and more recently, plans to produce desalinated water. This focus on 'increasing supply
without managing demand' has contributed to excessive and inefficient use of water.

China has mainly relied on administrative measures rather than market-based

instruments for water management, due to its long tradition of centralized authority.
11
Xie, Jian. "Water Scarcity in China: Current Situation." Addresssing China's Water Scarctiy: Recommendations for
Selected Water Resource Management Issues. (2009): 27. Web. 10 Nov. 2013. <http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2009/01/14/000333037_20090114011126/Rendered/
PDF/471110PUB0CHA0101OFFICIAL0USE0ONLY1.pdf>.
Market-based water pricing should be an important policy instrument to improve water
resource allocation among different economic uses and enhance water-use efficiency.
However, water prices in China are determined politically and by top-down
administrative commands rather than by the market.

Investment on the environmental protection in China is still not sufficient. As

reported by Bloomberg in 2013, Chinese government is still trying to boost the funding.

Unlike in developed countries where polluters are responsible for the full cost of
remediation and compensation, polluters in China are not strictly controlled. Although
the country has implemented a pollution levy system since the 1980s, the pollution tax
and penalties for noncompliance are low and not often prohibitive.

There is also a criticism against the South-North Project. The project involves
transferring water from southern river to the dry north and link China's four main
rivers (the Yangtze, Yellow River, Huaihe and Haihe) which is planned to be completed
by 2050. The two involving rivers have very different ecosystems, and the idea of
transferring water from one to other could cause environmental harm which is
impossible to repair. Yangtze river in the south is already highly polluted, and the water
transfer has already killed many organism12.

Another aspect that worsen the situation is overpopulation. Although China has
vowed to spend trillions of dollar to boost the water supply, it will not meet the need for
the ever growing population and urbanization.

China's Water Demand Projection

According to The World Bank (2009), China's total water demand in 2030 is
projected to increase from 563.3 km3 in 2005 to 653.5 km3 (a 16 percent increase) in
2030 (see table 1). This is largely driven by industrial and municipal demands, which
will increase 42 km3 and 40 km3 on the level of 2000, respectively, while agricultural
demand will decrease 10 km313.

12
"All Dried Up." The Economist. 12 Oct 2013. Web. 10 Nov. 2013.
<http://www.economist.com/news/china/21587813-northern-china-running-out-water-governments-remedies-are-
potentially-disastrous-all>.
13
Xie, Jian. "Water Scarcity in China: Current Situation." Addresssing China's Water Scarctiy: Recommendations for
Selected Water Resource Management Issues. (2009): 22-23. Web. 10 Nov. 2013. <http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2009/01/14/000333037_20090114011126/Rendered/
PDF/471110PUB0CHA0101OFFICIAL0USE0ONLY1.pdf>.
 This increase is driven by the continuing process of urbanization with the share
of urban population likely to reach 55 to 60 percent by 2020. The population itself will
also keep growing and peak at 1.5 billion around 2033 (see table 2).

Table. 1 Projection of Water Demand in China

Source: Addresssing China's Water Scarctiy: Recommendations for Selected Water Resource Management Issues,
The World Bank: 2009

Table. 2 China's Population Growth by 2012

Source: Trading Economics, retrieved in November 2013 from http://www.tradingeconomics.com

China's Water Scarcity Impact to U.S. - China Trade

China is the second top U.S . trading partner by September 2013, and the second
import source country (see table 3).

Tahle. 3 The U.S. Top Trading Partner by September 2013

Source: United States Census Bureau, retrieved in November 2013 from http://www.census.gov/foreign-
trade/statistics/product/enduse/imports/c5700.html

According to United States Census Bureau, China's main export to U.S. are
computers (US$ 47,636,277 thousand), telecommunication equipment (US$ 19,144,288
thousand), textiles (US$ 20,619,263) and cotton (US$ 15,525,521 thousand)14.

Computer and telecommunication equipment components like microchip

contains semiconductor material called silicon. This silicon is required large volume of
highly pure water in order to clean its wafer from particle, organic and metallic
contamination which is used by the manufacturing of semiconductor or microelectronic
industry. The second largest use of pure water in microchips manufacture is for cooling
process and space conditioning. Silicon crystal growth is a high-temperature process
and requires cooling water for process control15.

Other imported goods from China is textile and cotton. The foreign investment
for textile industry is mainly concentrated in the eastern coastal areas such as Zhejiang,
Jiangsu, Shandong, Fujian, Guangdong and Shanghai, where water supply is severely in
14
"U.S. Imports from China by 5-digit End-Use Code 2003-2012." United States Census Bureau. U.S. Departement of
Commerce. Web. 27 Nov 2013. <http://www.census.gov/foreign-trade/statistics/product/enduse/imports/c5700.html>.
15
Barron, Andrew R., ed. "The Environmental Impact of the Manufacturing of Seminconductors." Connexions.
Connexions. Web. 1 Nov 2013. <http://cnx.org/content/m14503/latest/>.
crisis16. Cotton production involves abundant of water use in agricultural stage,
especially for irrigation. It also threats the environment with insecticides during the
plantation. In textile manufacturing, water is needed in coloring process, and the water
waste contains dangerous chemicals.

Conclusion:

Based on facts that the water resource management in China still

underdeveloped in many aspects, the water scarcity problem in China could give impact
to China's export to United States. In computer and telecommunication equipment
sector, China's productivity might decline. China is already running out of clean water,
and semiconductor manufacturing involves environmental risk like water
contamination. Moreover, the diminution of supply would give effect to the U.S.
computer and telecommunication firms' sales as well. If this happens continuously,
computer and telecommunication equipment price in the U.S could emerges. Same thing
could happen on textile and cotton, where joint ventures with the U.S. has been
developed . There could be a possibility for U.S. to find alternative supplier beside China.
At the end, China's position as the U.S. import source for these sectors could be replaced
by other countries.

The over exploitation of water in China driven by its rapid economic growth and
the underdeveloped water resource management could risk China's foreign trade
relations with United States, especially in computer, telecommunication equipment,
textile and cotton supply.

-ooOoo-

16
People's Republic of China. China Council For The Promotion of International Trade Economic Information Department.
China Business Guide: Textile Volume. Guangdong: China Council For The Promotion of International Trade Economic
Information Department, 2007. Web. <http://ccpit.free.fr/Chinese_Business_Guide_Textile_Volume.pdf>.
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