China's coal-fired economy has a thirst for power

At first glance, Daliuta in northern China appears to have a river running through it. But a closer look reveals the stretch of water in the town centre is a pond, dammed at both ends. Beyond the barriers, the Wulanmulun's bed is dry.

Daliuta in Shaanxi province sits on top of the world's biggest underground coal mine, which requires millions of litres of water a day for extracting, washing and processing the fuel. The town is the epicentre of a looming collision between the mainland's increasingly scarce supplies of water and its plan to power economic growth with coal.

"Water shortages will severely limit thermal power capacity additions," said Charles Yonts, head of sustainable research at brokerage CLSA Asia-Pacific Markets in Hong Kong. "You can't reconcile targets for coal production in, say, Shanxi province and Inner Mongolia with their water targets."

Coal industries and power stations use as much as 17 per cent of the mainland's water, and almost all of the collieries are in the vast energy basin in the north that is also one of the country's driest regions. By 2020 the government plans to boost coal-fired power by twice the total generating capacity of India.

About half of the mainland's rivers have dried up since 1990 and those that remain are mostly contaminated. Without enough water, coal cannot be mined, new power stations cannot run and the economy cannot grow. At least 80 per cent of the mainland's coal comes from regions where the UN says water supplies are either "stressed" or in "absolute scarcity".

The mainland has about 1,730 cubic metres of fresh water per person, close to the 1,700-cubic-metre-level the UN deems "stressed". The situation is worse in the north, where half of China's people, most of its coal and only 20 per cent of its water are located.

Shanxi - the nation's biggest coal base, accounting for about 28 per cent of production - has per capita water resources of 347 cubic metres, less than the Middle Eastern nation of Oman. Inner Mongolia and Shaanxi, which together contribute 40 per cent of coal output, have less than 1,700 cubic metres per person.

A government plan to boost the coal industry and build more power plants near mines will lift industrial demand for water in Inner Mongolia by 141 per cent by 2015 from 2010, causing aquifers to dry up and deserts to expand, according to Greenpeace and the Chinese Academy of Sciences' Institute of Geographical Sciences and Natural Resources.

About 28,000 rivers have vanished since 1990, according to the Ministry of Water Resources and the National Bureau of Statistics.

"After five years there won't be enough water in Ordos in Inner Mongolia," said Sun Qingwei, director of the climate and energy campaign at Greenpeace in Beijing. "The mines are stealing ground water from agriculture. Local governments want their economies to boom."

Wells drilled near Haolebaoji near Ordos by Shenhua Group, the world's biggest coal producer, have caused groundwater levels to drop to a depth of as much as 100 metres, drying out the region's artesian wells, Greenpeace said on Tuesday.

China is responding to the crisis with harsher limits on water usage and a new tariff structure that allows for steep price gains. It plans to spend four trillion yuan (HK$5.1 trillion) by 2020 to boost water infrastructure.

Caps introduced in January limit the annual increase of water used by the four biggest coal-producing regions to 2.9 per cent annually until 2015, while their combined coal output is set to increase almost 5 per cent a year.

Debra Tan, director at research firm China Water Risk in Hong Kong, said stricter controls would raise the risk of investment in water-intensive industries and heavy polluters including coal, metals and paper production, especially in the north.

Scott Moore, a research fellow at the Harvard Kennedy School's sustainability science programme in Cambridge, Massachusetts, said: "In an absolute worst case you'd see a large-scale shift in economic activity and population further south for lack of water, and manufacturing increasingly moving abroad."

To alleviate the shortage in the north, the central government in 2002 approved the 500 billion yuan South-North Water Diversion Project, the largest irrigation project in the world. The plan is to carry 44.8 billion cubic metres of water a year from the Yangtze River along three routes.

But even this massive programme may not be enough. The Asian Development Bank said in a report last year that the mainland's demand for water may exceed supply by as much as 200 billion cubic metres by 2030, according to some estimates, unless "major capital investments to strengthen water supplies are made beyond those presently planned".