How does China matter?

Water, Other things and its Impact on the Rest of the World

Northern China’s Water Shortage

• Falling Supply– Rapidly falling

groundwater levels

– Historically low surface supplies

• Rising Demand– Urban and

Industrial– Agricultural

“Saving Water, Saves Lives”

Changing Trends in Water use

• Nationally: more and more water being allocated to urban and industrial uses

• National policy: Water use priorities

Urban residential Industry Rural residential Irrigation (is last)

11%

21%

68%

Domestic

Industrial

Agriculture

2001

19781% 14%

85%

DomesticIndustrialAgriculture

Projected Water use, 2020

2020

17%

30%

53%

Domestic

Industrial

Agriculture

Hai River Basin Surface Water Flows – 1980 to 2003

0

10

20

30

40

50

60

70

80

90

100

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Billions meter3

Between 1985 and 1995, the Yellow River had between 30 to 180 days of flow interruptions in the lower reaches of the basin

Increase of Groundwater Irrigation in China

1 5

30

55 5868

0

10

20

30

40

50

60

70

1950 1960 1970 1980 1995 2004

Percent of Irrigated Area, Irrigated by Groundwater in Northern China

Increase of Tubewells in China

0 0.53

8

15.5

20

0

5

10

15

20

25

1950 1960 1970 1980 1995 2004

Millions

A

B

C

A = number of wells reported in MWR statistical yearbook

B = number of tubewells in India

C = number of tubewells in the Rest of the World, including India

Hebei: Falling Shallow GW Table

0

10

20

30

40

50

Bailuobao Station (Feixiang County)

Jiuzhou Station (Ren County)

Longhua Station (Baixiang County)

Shanxi

HenanShaanxi

Hebei

Inner Mongolia

Liaoning

Data set 1 – collected by CCAP and University of California, Davis

2004 North China Water Resource Survey (NCWRS):

400 communities; 50 counties, 6 provinces

National Representative (of North China)

I. Characteristics of Aquifer• Types of aquifers:

– Most pumping from shallow 0

.01

.02

.03

.04

0 50 100 150x

kdensity depth95 kdensity depth04

.04 .03 .02 .01 0

Depth to Water in GW Using VillagesEstimated Density

~% of villages

1995 2004

Depth (m): 0 50 100 150

Average depth 2004: 28 m

Average depth 1995: 21 m

Groundwater Levels are Falling, but varies across Northern China

Change in Average Water Level 1995-2004

• Increased: 16%• No Change: 18%• Decreased < ¼ m/year 17%

• Decreasing ¼ to 1/5 m/year: 40%• Decreasing > 1.5 m/year: 8%

52%

There are problems

but not everywhere …

of course, in some places, the problems are serious …

Where there is a problem, is there a response by the government?

Water Law and Policies of MWR

• Wells drilled by permit only

• Regulation on pump spacing

• In areas that are “seriously over-extracted,” control volume of pumping

• Water extraction fee can be assessed

• Control price of water charged by farmers that sell water

• Moving towards pricing policies

Less than 5% of villages

Less than 7% of villages

2 out of 400 villages

Zero

Less than 10% actually try to control price

Not very fast

23

45

67

Vol

ume

of a

ppl

ied

wat

er in

log

form

, m3

/mu

-4 -3 -2 -1 0 1Average cost of water in log form, yuan/m3

bandwidth = .701

LOWESS Estimate,Bandwidth=0.701Response by farmers?

Elasticity of response is low:

0.3 to 0.4 … this means to get a large response, need to double the price of water … 75% of farmers would lose money at current prices

Farmers’ response at the intensive margin:

Reduction in water use per unit of land Average

water depth (m)

Average cost of water (yuan/m3)

(Mostly cost of energy, plus service fee in some areas)

Average volume of

water applied to wheat (m3/mu)

4.4 0.096 513

6.7 0.084 306

24.6 0.201 257

77.5 0.414 150 Why so much water savings? Changes on the “extensive margin” [i.e., high water users, abandon farming”.

Farmer’s response at the extensive margin:

Changing cropping pattern

12.8% 15.0%

22.4%

40.6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1-25% 26-50% 51-75% 76-100%

4.7m 8.8m 40m 79mPercentile of water depthAverage depth of water

Share of high value crop intotal sown area (cash crop,vegetables, fruits)

Summary

• In many places there is a water problem …

• It is very difficult to regulate …• Price policy will work (tax electricity /

diesel) … but there will be equity issues AND food security …

• What happens to China’s food economy … in a rapidly growing / free trade world?

Nominal Protection Rates (NPR) for cereal and soybean

(Pd-Pw)/Pw x 100

-20

0

20

40

60

80

100

78-79 80-84 85-89 90-94 95-97 98-99 00-01 02-03 2004

Rice Wheat Maize Soybean

Agri. Trade Balance by Factor Intensity (mil US$)

-10

-5

0

5

10

15

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Net ExportsUS Dollars, Billions

Labor intensive (competitive): Fruits; vegetables; livestock and aquaculture commodities

Land intensive (uncompetitive): Grains; Oilseeds; Fiber; Hides; Sugar; Milk Powder; etc.

exports

imports

Rise of Supermarkets: Increasing Store Units

0

10000

20000

30000

40000

50000

60000

1990 1992 1994 1996 1998 2000 2002

20 to 30 percent annual growth between 1998 and 2002

Number of Stores

Increasing Sown Areas of Vegetablesin China and California (1000 ha)

70008000900010000110001200013000140001500016000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

0

200

400

600

800

1000CaliforniaChina

Every 2 years, + 1 California

Producer response:

Trends of Cultivated Areas of Fruits and Nuts in China and California (1000 ha)

2000

4000

6000

8000

1991 1992 1993 1994 1995 1996 1997 1998 1999 20000

2000

4000

6000

8000

CaliforniaChina

Campaign to upgrade quality

xx

x

x

x

xx

x

x

x

xx

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

36o

4060

80

100140

x

x

x

x

x

x

x

x

xx

x x

x

xx x

xx

x

xx

Selection of sample towns 10 times (once for each of 10 wedges making up the circle)

Total Town Sample Size:

5 circles x

10 towns per circle =

50 towns

(or Nt = 50)

Also need to get populations of ALL towns in each strata – for weighting

Where are they being grown?Inside Ring / Outside Ring

020406080

40 km ring 140 km ring

010203040

40 km ring 140 km ring

Share of Cultivate Area

Area / Village (acres)

“Mostly here”

140

40

These figures for vegetables in 2000 / same for F&N’s

Who are growing them?Rich or Poor?

050

100150

Rich Poor

0204060

Rich Poor

Share of Cultivate Area

Area / Village (acres)

These figures for vegetables in 2000/ same for F&N’s

• Per capita income:

“Rich” -- $7.28/day

Poor -- $1.25/day

Fruits / Nuts / Vegetables are being increasing grown by poor farmers in relatively remote communities!

“They do”

Domestic policy

interventions Trade

liberalization: GTAP

CAPSiM

Aggregate impacts: by commodity at national level

Price transmission models

Impacts by region: Production Consumption Income ….

Impacts on poor/richer: Production Consumption Income ....

A framework for regional model and policy interventions analysis

Based on 80,000 household, disaggregated hh dataset

Impacts of China’s Trade Liberalization:Chang in agricultural production between 2005 and

2010 (compared with baseline, %)

-15

-10

-5

0

5

10

15

Uncompetitive commodities

Competitive commodities

% of production

Self-sufficient levels (%) of food, feed and fiber

0

10

20

30

40

50

60

70

80

90

100

110

2001 2020Uncompetitive: Feed grains, oilseeds, fiber

Self-sufficient levels (%) of food, feed and fiber

“Will China Starve the World?”

0

10

20

30

40

50

60

70

80

90

100

110

2001 2020

Food grains

Self-sufficient levels (%) of food, feed and fiber

0

10

20

30

40

50

60

70

80

90

100

110

2001 2020 Competitive: Fruits / vegetables and processed foods

Impacts of WTO on agri. output for average farm by province in China, 2005 (%)

lose

gain

losers

winnersAlthough on average agricultural sector is a winner, there are regional impacts

WTO对各地区化肥施用量的影响 ,%,2005年Impacts on fertilizer use in 2005, %

WTO对各地区农药施用量的影响 , ％ ,2005年Impacts on pesticide use in 2005, ％

Baseline: Net export in 2001 and 2020 (billion USD)

-100

-50

0

50

100

150

2001 2020

Baseline: Percentage of China’s net export in world total export in 2001 and

2020

Energy

Mineral

Textile+apparel

Manufacture

Service

-20

-10

0

10

20

30

Energy

Mineral

Textile+apparel

Manufacture

Service

2001 2020

Impacts of high GDP growth scenario: Welfare change (%) in different regions in

2020

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

HK

+Taiwan

Japan+S.K

oreaIndia

Other A

sianA

usNzl

NA

FTA

S. A

merica

Enlarged E

UR

ussia

RO

W

Final Word

• In worrying about number 1, 2 and 3 countries …

• China matters … – In the case of China, itself … – and in the case of its impact on the rest of the

world …