Why Should PRD Business Lead In Water Stewardship?

Feng Hu, China Water Risk, and Zhenzhen Xu, Alliance for Water Stewardship
May 18, 2017

The Pearl River Delta (PRD) has been an economic powerhouse, delivering about one tenth of China’s GDP and driving the development of neighbouring regions. In the meantime, it also faces many water challenges, which might get worse in the face of climate change (as China Water Risk explored in “Pearl River Delta: 5 Water Must-Knows“).

None of these challenges can be tackled alone. Pollution and climate change could both exacerbate scarcity; while, water saving helps reduce the amount of wastewater being produced. The complexity of these challenges and their interlinkages mean that a more holistic approach is needed to address all of them. By doing this, it will also encourage more comprehensive and long-term solutions.

Greater economic cooperation beyond the PRD…
Closer economic ties are being built between the upstream and the downstream along the main tributaries of the Pearl River Basin. For instance, the ‘Pearl River-Xijiang Economic Belt’ links 3 PRD cities (Guangzhou, Foshan and Zhaoqing) with 8 cities along the Xijiang River, a western tributary of the Pearl.

This plan aims to promote wide cooperation from key infrastructure, river management, industry transformation to public services. It also encourages industries to transfer or expand from PRD to upstream cities, including both traditionally advantageous manufacturing that are already moving such as electronics, and strategic ones such as IT, chemicals, automobiles & batteries.

Meanwhile, an even more ambitious plan, the ‘Pan-Pearl River Delta’ (PPRD) corporation mechanism, has been initiated by 9 Provinces along the Pearl River (Guangdong, Fujian, Jiangxi, Hunan, Guangxi, Hainan, Sichuan, Guizhou and Yunnan) along with Hong Kong and Macau since 2004. Last year, this regional vision got upgraded to a national strategy to promote deeper cooperation in the PPRD. China hopes it will become a shining example for the grand plan of ‘Made in China 2025’.

Already, advanced manufacturing accounted for over half of industrial value added for Guangzhou, Shenzhen and Huizhou in 2015 (see left below chart).

…but mind the risk of pollution transfer to the upstream
However, one worry is: without coordinated actions in water management, such economic planning along the river basin could result in worsening environment in the upstream. The ‘Pollution Haven Hypothesisi argues that tighter environmental regulation could lead to the moving of polluting industries to the upstream.

Indeed, a Chinese studyii highlighted such relocation across several industries, where hundreds of factories moved from PRD to non-PRD regions in Guangdong during 2000-2013. Without proper treatment, pollution in the upstream eventually will flow down the river and threaten water security and safety of downstream cities. Even within the PRD, as seen from right above chart, despite significant improving of wastewater treatment rates over 2005-2015, the situations still vary among cities: upstream PRD city Zhaoqing had a rate of 85% in 2015, compared to 96-98% in many other cities.

Similar experiences have been learned along another important and developed river basin – the Yangtze. Thus, cross-region economic planning and basin-wide water management must go hand in hand.

A greater manufacturing hub urges a closer look at hidden water risk
If the Pearl River-Xijiang Economic Belt or the PPRD succeeds, the Pearl River Basin could play an even more dominant role across many manufacturing industries in the world. But, would that also mean much greater volumes of water use and wastewater discharge?

Take the electronics and IT industries for example: many products require necessary raw materials such as rare earths. As highlighted in CWR’s report ‘Rare Earths: Shades Of Grey – Can China continue to fuel our clean and smart future?’, half of China’s production quota of ‘Medium Rare Earth Elements’ (MREEs) is in Jiangxi province, especially Ganzhou city, which sits in the upstream of Dongjiang River, the eastern tributary of the Pearl.

This supply chain of rare earths adds an economic link on top of the physical one between the PRD and the upstream region of the Dongjiang River. However, it is not necessary all good news for the upstream.

Lack of environment protection measures and illegal mining, fueled by black markets, have led to a clean-up bill of at least RMB38 billion (USD5.6 billion) for the polluted soil and water in Ganzhou city alone. This is not to mention the downstream concern over water safety, as Dongjiang River is the main water source for many PRD cities as well as Hong Kong. But who will pay for the clean-up?

Policy already moving ahead: eco-compensation for pollution recovery
Tougher penalties could help prevent illegal miners from wrongdoings. However, with national total environment related fines at RMB6.63 billion in 2016, it is clearly not enough for the clean-up in Ganzhou alone. Fortunately, new mechanisms are being promoted, including water rights trading and eco-compensation schemes between upstream and downstream to pay for pollution recovery costs.

Dongjiang River is one of six national ‘transboundary’ eco-compensation pilot regions. The two provincial governments, Guangdong and Jiangxi, signed an agreement in late October 2016, with both sides equally contributing RMB1 billion every year to ensure minimum Grade III water quality at the border.

Moreover, the Guangdong provincial government also indicated its plan to set up eco-compensation pilots along the Xijiang River and a few others by 2020.

In addition, better coordination among government departments has also been prioritised since the ‘Water Ten’. In 2016, a provincial level working group, led by top officials in both provincial and PRD city governments, was also set up to coordinate actions in preventing and controlling water pollution in the region. By the end of this year, a unified water quality monitoring network covering both freshwater and coastal environment is expected to be established.

Business to lead in water stewardship, for a win-win
We believe that businesses could play a bigger and more proactive role. According to The Economist, many businesses still consider the PRD as an important battle field in China. With serious water pollution in the delta areas, and increasing risk to source water security due to sea water intrusion along coastal areas and pollution pressure from upstream development (more on this here), it certainly makes sense for businesses to re-consider water as a strategic issue rather than a material input. This will help manage their water risks, and also ensure both the economic and environment future of the whole region.

No single business could succeed on its own. This is especially true for regions like the PRD, where many companies are located in various forms of industrial parks or special economic zones. Many sectors such as Chemical, Automotive and IT have largely benefited from such a cluster approach. Thus, water security of their surrounding regions matter. Working towards water stewardship in these industrial parks can ensure both the long-term business prosperity and regional water security.

Such collective actions from business on water stewardship are already happening outside the PRD. In Northern China, Alliance for Water Stewardship (AWS) is supporting Tianjin Economic-Technological Development Area (TEDA) to roll out its water stewardship system. The project is led by the TEDA government and supported by major water users within it (more here). The system aims to systematically tackle water related business risk and impact and encourage individual and collective efforts to improve water quality, quantity, ecosystem health and water governance.

As learned from Xijiang and Dongjiang, to achieve green development of the PRD, it will need a holistic approach to balance water and economic development. For complex and interconnected issues like water, collective actions from all the different regions and stakeholders may be the only good choice in the end.

Centred in the ‘Water Stewardship’ concept, the ideas of going beyond compliance and going beyond the fence line will facilitate cooperation along the business value chain and across various stakeholder groups at both industrial zones and catchment levels. For the PRD, opportunities are abound in transforming the mindsets of businesses and setting high standards for greenfield development in upstream areas.

In the following months, China Water Risk and Alliance for Water Stewardship will work together on a research brief on the PRD. It will provide a thorough overview of water challenges faced by the region and successful case studies from industry leaders in managing their water. We hope the brief will inspire more companies to move beyond compliance and become water stewards.

Stay tuned!

i. Levinson, A. and Taylor, M. S. (2008), UNMASKING THE POLLUTION HAVEN EFFECT. International Economic Review, 49: 223–254. doi:10.1111/j.1468-2354.2008.00478.x

ii. Shen, J., Wei, Y.D. and Yang, Z., 2017. The impact of environmental regulations on the location of pollution-intensive industries in China. Journal of Cleaner Production, 148, pp.785-794.

Scroll to Top