Know Your China Water Risk

Tuesday, October 2, 2012 9:17

An interesting article in the FT highlighting the findings of a report put out by HSBC and China Water Risk called No Water, No Power (download here)  highlighting the risk of water becoming an economic force in the medium term:

“We think provincial water caps could force a change in the economic mix since 45% of China’s GDP is produced in water-scarce provinces. Facilities may have to relocate because arable land cannot be moved, and water quotas and pollution reduction targets could be enforced more strictly than in the past.”

[...] “Water and power risks need to be considered by financiers, investors and companies as a core feature of capital expenditure plans. Project financiers should consider these resource shortages before funding assets; investors should examine the effects of potential water shortages on facilities located in water-scarce provinces; and companies should be more conscious of water quotas and pollution targets as they strive to make operations more efficient.”

With the key findings being:

  • Currently 97% of power generated in China is reliant on water
  • Industry face a double whammy and nearly half of China’s GDP is earned in water-scarce provinces
  • By 2030 China plans to add more than the total installed power capacity of the US, the UK and Australia
  • Looking ahead, ambitious expansion plans for power capacity could face real water constraints
  • This is expected to drive an increased focus on water and energy efficiency in the power, industry and mining sectors
  • New central water quotas and provincial caps could force a change in economic mix and 11 Provinces at Risk (PAR 11) are identified
  • Project financiers, investors and companies should consider resource shortages and more efficient options before funding, investing and expanding

It is an interesting report on an important topic, and I highly recommend taking the time to read through it.  Water will be one of the most critical issues for China as the access and quality of water is a cycle that will not only be important for the energy industry.. it will be important for food (And food safety), and the long term viability of some of China’s largest Megacities.

 

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