Why water consciousness is a business imperative in China

[Editor's note: This is the first in a two-part series that examines the water risks and solutions facing Chinese supply chains.]

Droughts in the north, floods in the south. Toxic industrial runoff, overdrawn ground water and even bloated pigs and dead ducks in major waterways. The list of China's water woes is long and appears to be growing.

We all know that China is the supply chain hub for the American economy. Nearly everything we use -- mobile phones, TVs, handbags and even U.S. Olympic team clothing -- is made in China, where export jobs support 200 million workers.

Yet despite the avalanche of news reports and stomach-churning photos, I've found it challenging to get to the bottom of the many water risks facing the industrial suppliers of U.S. companies. Media censorship and poor government data means limited access to information for many corporate managers we speak to at Ceres who are only beginning to understand the complicated nature of the water risks facing their Chinese supply base.

So, what do we know about the Chinese water situation?

Some statistics speak for themselves: At least 50 percent of Chinese urban groundwater and 90 percent of urban rivers are considered polluted. About half of all wastewater is released into the environment untreated, affecting ecological and human health alike. And a government assessment released just last week found that half of China's rivers -- 28,000 in all -- have simply "disappeared" since the country's waterways were last surveyed in the 1990s.

Bad water means a weaker economy. The World Bank says that on the low end, China's water woes already cost the country at least 2.3 percent of GDP per year. Some are saying there is potential for the economic burden to get significantly worse. Investment manager HSBC notes that approximately 45 percent of China's GDP currently originates from water-scarce provinces, and that the country is betting on additional industrial growth in 14 of the most water-stressed provinces.  

Sounds bad, right? But what does this mean for your suppliers, or your suppliers' suppliers?

Water coming into factories is often too polluted for use and pre-treatment is pricey

Although China mandated the construction of thousands of new wastewater plants in its 10th Five-Year Plan (2001-2006), far fewer actually were built due to funding shortfalls. Of those that were built, half either were operating improperly or not at all. The state's low capacity to treat water supplies has placed a heavy onus on businesses to invest in technology and services to provide clean water required for their operations.

Next page: Impact on production