China - Agenda for water sector strategy for North China : summary report (Vol. 1 of 4) : Summary report

Report No. 22040-CHA China Agenda for Water Sector Strategy for North China Summary Report May 9, 2002 Rural Development and Natural Resources Unit East Asia and Pacific Region u Document of the World Bank  CURRENCY EQUIVALENT (As of January 1, 2002) Currency Unit = Yuan (Y) US$1.00 = Y 8.3 Y 1.00 = US$0.12 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES Metric System ACRONYMS AND ABBREVIATIONS 3-H Hai, Huai and Yellow River Basins mg milligram 3-HMS 3-H Modeling System MR Main Report (Volume 2) AAD Accumulated Annual Damage mu Chinese unit for area (I ha = 15 mu) ARI Average Recurrence Interval MWR Ministry of Water Resources AusAID Australian Agency for International NIHWR Nanjing Institute of Hydrology and Water Development Resources Bcm Billion Cubic Meters O&M Operation and Maintenance BOD Biological Oxygen Demand P25 25 percent probability of flow BOT Build-Operate-Transfer P50 50 percent probability of flow BWUs Beneficial Water Uses P75 75 percent probability of flow CAD Comprehensive Agricultural Development P95 95 percent probability of flow Class (I-V) Water quality class PPI Private Sector Participation in Infrastructure COD Combined Oxygen Demand RBCM River Basin Commission CRAES Chinese Research Academy for RBCN River Basin Council Environmental Science RSFS Rapid Sand Filtration System DC Developing Country SDPC State Development Planning Commission EPB Environmental Protection Bureau SEPA State Environmental Protection FPF Fisheries, Pasture, Forestry Administration GDB Groundwater Database SIDD Self-Financing Irrigation and Drainage GDP Gross Domestic Product District GIWP General Institute of Water Resources and S-N South-North Transfer, Eastern and Middle Hydropower Planning and Design Route GMA Groundwater Management Area S-N-E South-North Transfer, Eastern Route GMP Groundwater Management Plan SOCAD State Office of Comprehensive Agricultural GMU Groundwater Management Unit Development GW Groundwater SOE State-Owned Enterprise ha Hectare SY Sustainable Yield IC Industrialized Country TDS Total Dissolved Solids ID Irrigation District TVE Township and Village Enterprise IPPDI Irrigation and Power Planning Design WB World Bank Institute WLS Working Level Standard IWHR Institute of Water and Hydropower Research WPM-DSS Water Pollution Management Decision km Kilometer Support System I liter WRB Water Resources Bureau LIS Large Irrigation Scheme WSC Water Supply Company m meter WTO World Trade Organization m3 Cubic Meter WUA Water User Association Mcm Million Cubic Meters WWTP Wastewater Treatment Plant Vice President Jemal-ud-din Kassum, EAP Country Director Yukon Huang, EACCF Sector Director Mark D. Wilson, EASRD Task Manager Daniel J. Gunaratnam, Consultant  Preface ..................................................................... v Acknowledgments ..................................................................... vi Executive Summary ..................................................................... vii i. im JKVOUC IU% L LVI .................................................................................................... ; A. The Purpose of the Study .................................................................... 1 B. Ilie % ral Study Co.nclusionU ..................................................................... I C. The Study Work Program .................................................................... 2 LD. VLllUUlUyan UIIU UULLUI VI oIf .XhJ L .................................................................... 2 E. Focus on the 3-H Basins .................................................................... 7 2. THE CHANGING ECONOMY AND SOCIETY AFFECTING THE WATER SECTOR ......... 8 A . Tntroduction ..................................................................... B. Background on the Economy .................................................................... 8 C. BackgrAlund on Socil2 Trpntlc Affecting W.atr Resources.9 r~~~~~~~~~~~~~~. Bakron oo Soia Trnd . ^ErigWtrRsl ............................................................... D. The Future Economy in the 3-H Basins .................................................................... 10 FP Titiirp-SRnriAl Trp-nd. I' F. ...9 Soc-ia! ............................................................................................. 1 3. WATER RESOURCES AND ISSUES ............................ ............ . ,. . . 14 A. Introduction ........................................ 14 B. Water Resources and Withdrawals ........................................ 14 C. Floods and Flood Control in China ........................................ 18 D. Current Flood Control in China ........................................ 19 E. Water for Agriculture ........................................ 21 F. Water Pollution ......................................... 24 G. Depleted Groundwater Resources ......................................... 32 H. Present Situation on Water Sector Management ......................................... 35 I. Investment in the Water Sector and Private Sector Participation ............................................... 36 4. SUFFICIENT WATER FOR ALL .................................................... 39 A. Introduction ................................................... 39 B. Water Demand Projections ................................................... 39 C. Water Supply Projections ................................................... 44 D. Water Balances in the Future ................................................... 47 E. Economic Value of Water and of Water Shortages ....................... ............................ 51 F. Action Plan for Balancing Supply and Demand ................................................... 54 5. FLOODS AND FLOOD D AMAGE ....................................................... 59 A. Introduction ................................................... 59 B. Summary of the Current Flood Control Strategy ................................................... 59 C. Level of Protection (Flood Standard) ................................................... 59 D. Appropriate Standards for Food Protection ................................................... 60 E. Development of Flood Protection Methodology .................................................... 61 F. Action Plan for Flood Control ................................................... 63 -e&vv ITY1UIYyW"5 101% Y.IfTb A T YTe U. saUrrl LD rV%JW rvIJL t%LJlS ...............................................................................,,,.....,,,,,,,.,........,,.,., 0;f A. Introduction ................................ 65 LB. ImpliCabouIoa uI ss v ater andU LaTU .^n................................ U6  - ii- C. Implications of WTO Accession .......................................................... 66 D. Implications for Food Security .......................................................... 68 E. Irrigation with Improved Institutions and Water-Saving Measures .......................................... 69 F. Agricultural Action Plan .......................................................... 75 7. CLEAN WATER FOR ALL .......................................................... 77 A. Introduction .......................................................... 77 B. Current Water Pollution Control in 3-H Basins .......................................................... 77 C. The Need for Modeling with a knowledge-Based System ........................................................ 80 D. Action Plan Prioritization .......................................................... 81 E. Projected load generations under the."business as usual" scenario ...................... .................... 81 F. Options for Additional Pollution Loads Reductioris .......................................................... 84 *G. Coastal Zone Water Quality .......................................................... 89 H. Cost of Government Program (Base Case) and Action Plan (Program 3) ................................ 94 8. WASTEWATER REUSE .......................................................... 99 A. Introduction .......................................................... 99 B. Situation in China and the 3-H Basins .......................................................... 100 C. Potential Wastewater Reuse Applications .................... ...................................... 101 D. Regulations for Reuse .......................................................... 103 9. GROUNDWATER .......................................................... 105 A: Introduction .......................................................... 105 B. Action Plan for Competent Groundwater Management .......................................................... 105 C. Action Plan for Wastewater Reuse ...................................-.--.--.-.------------------.----.--.----.----------.107 10. INSTITUTIONAL MANAGEMENT .110 A. Introduction .110 B. Water Resource Management in China .110 C. Basic Institutional Issues .................................................. 110 D. Water Supply Allocations .................................................. 111 E. Basin Management Functions of River Basin Councils .................................................. 113 F. Groundwater Management .................................................. 113 G. Regulation and Enforcement .................................................. 113 H. Environmental Standards for Water Quality .............. .................................... 114 I. Environmental Monitoring and Enforcement .................................................. 115 J. Economic Regulation .................................................. 116 K. Demand Management: Financing and Price Incentives .................................................. 116 L. Organizational Issues and Service Delivery .................................................. 117 M. Recommendations .................................................. 119 11. PROPOSED ACTION PLANS .................................................. 121 A. Introduction .................................................. 121 B. Summary of Action Plan for Water Resources .................................................. 126 C. Sumrmary of Action Plan for Flood Control .................................................. 127 D. Summary of Action Plan for Agriculture .................................................. 130 E. Summary of Action Plan for Nonstructural Pollution Control ................................................ 131 F. Summary of Action Plan for Structural Pollution Control .................................................. 134 G. Summary of Action Plan for Wastewater Reuse .................... .............................. 137 H. Summary of Action Plan for Groundwater .................................................. 138 I. Summary of Action Plan for Institutional Management . ................................................. 139  TABLES Table 1.1: Province Areas in the 3-H Basins .........................................................................2 Table 2.1: Urban and Rural Domestic Daily per Capita Water Consumption in the 3-H Basins and China (lcd) Compared with Urbanization (percent) ..................................................................... 10 Table 2.2: GDP and Urbanization in 3-H Basins According to Different Economic Models .................... 11 Table 2.3: China's Economic Structure in 2050 ........................................................................ 11 Table 2.4: Nonagriculture Water Demand for the 3-H Basins for 2000-50 for Different Scenarios .......... 12 Table 2.5: Forecasted Total, Rural and Urban Population ........................................................................ 13 Table 3.1: Utilization of Groundwater in the 3-H Basins ......................................................................... 15 Table 3.2: Current (2000) Shortages under Different Runoff Probabilities .....................r.......................... 16 Table 3.3: Economic Value of the 2000 Solutions .............................................. ........................... 16 Table 3.4: Average Economic Value of Water in the 2000 Solutions ........................................................ 17 Table 3.5: Flood Damage Losses in the Main Provinces of the 3-H Basins ................... ........................... 19 Table 3.6: Flood Control Infrastructure in the 3-H Basins ........................................................................ 20 Table 3.7: Groundwater and Surface Water Irrigation Area ...................................................................... 22 Table 3.8: Long-Term Mean Groundwater Resources of the Basins in China ........................................... 32 Table 3.9: Groundwater Resources and Use in 3-H Areas ........................................................................ 34 Table 4.1: Demand Structure for Different Sectors for P75 year .................................................. ............. 43 Table 4.2: Demand Changes under Different Scenarios ........................................................................ 45 Table 4.3: Total Supply for 95 Percent Probability under Base Case .............................. .......................... 46 Table 4.4: S-N Water Transfer Capacity ........................................................................ 46 Table 4.5: Total Supply for 95 Percent Probability with S-N Transfer ...................................................... 47 Table 4.6: Future Supply-Demand Balances and Shortages for the 3-H Basins for Base Case Scenario (P75) ........ ................................................................ 47 Table 4.7: 3-H Basins Water Shortages under Different Scenarios ............................................................ 48 Table 4.8: Effectiveness of Each Water Shortage Reduction Measure ......................... ............................. 50 Table 4.9: Economic Value of Water for Different Sectors ....................................................................... 51 Table 4.10: Shortage Reduction Discounted Benefits and Costs ............................................................... 53 Table 4.11: Water Tariff Assumptions for Base and High Price Cases in Real Terms ........... ................... 55 Table 5.1 Typical Problems and Solutions ..................... ................................................... 63 Table 5.2: Cities with Low Level of Flood Protection ........................................................................ 64 Table 6.1: Total Production Value for the 3-H Basins for Different Probabilities from 2000 to 2050 ...... 66 Table 6.2: Total Crop Production With WTO and Without WTO Accession ............................................ 67 Table 6.3: Changes in Present Value of Crop Production in the 3-H Basins with Non-WTO and WTO Accession ........................................................................ 68 Table 6.4: Water-Saving Development in 1998-99 ........................................................................ 73 Table 6.5: Additional Investment to Existing SOCAD, Water-Saving and LIS Programs Proposed by the Action Plan ........................................................................ 75 Table 6.6: Resulting Total Land Improvement (SOCAD and Water-Saving) ............................................ 75 Table 6.7: Resulting Total Land Improvement (LIS) ........................................................................ 75 Table 7.1: Prioritizing Criteria Used to Select Cities/Regions for the Action Plan ............... ...................... 83 Table 7.2: Hai and Huai basins overall priority cities ........................................................................ 83 Table 7.3: Possible Intervention Programs to Reduce COD Pollution Loads in the Hai and Huai Basins ........................................................................ 85 Table 7.4: COD Loads to the Sea from the Hai and Huai Basins ............................................................... 89 Table 7.5: Hai Basin Structural Pollution Control Investment (2000-2020) .............................................. 95 Table 7.6: Huai Basin Structural Pollution Control Investment (2000-2020) ............................................. 96 Table 8.1: Categories of Municipal Wastewater Reuse and Potential Issues/ Constraints in Industrialized Countries (ICs) Compared to China and Other Similar Developing Countries .... 102 Table 9.1: Volumes of Water Required to Address Groundwater Problems in 3-H ............ .................... 108 Table 9.2: Volumes of Water Required for Water Supply Problems in Some Cities ............................... 108 Table 9.3: Groundwater Quality Assessment for Some Provinces in the 3-Basins .................................. 109 Table 11.1: Estimation on the Needed Investment for Implementation of the Action Plan .......... ........... 124  - iv - FIGURES Figure 1.1: Location of 3-H Basins in China .........................................................................3 Figure 1.2: Map of Hai Basin ........................................................................4 Figure 1.3: Map of Huai River Basin .........................................................................5 Figure 1.4: Map of Yellow River Basin .........................................................................5 Figure 1.5: Structure of the Report .........................................................................6 Figure 3.1: GDP and Percent Flood Losses for Provinces ........................................................................ 19 Figure 3.2: Farmers' Income Changes in Hebei Province ........................................................................ 24 Figure 3.3: Water Quality Classification in the Hai River Basin in 1995 ..................... ............................. 26 Figure 3.4: Water Quality Classification in the Huai River Basin in 1998 ................................................ 27 Figure 3.5: Pollution Sources in the Hai and Huai Basins ........................................................................ 27 Figure 3.6: COD Load Percentage by Various Industries in Hai Basin (1995) .......................................... 28 Figure 3.7: COD Loads Percentages of Various Industries in Huai Basin (1997) ............. ........................ 28 Figure 3.8: 2000 COD Pollution Loads for Priority Cities in the Hai Basin under the Base Case ............. 29 Figure 3.9: 2000 Toxic COD Pollution Loads for Priority Cities in the Hai Basin under the Base Case.. 30 Figure 3.10: COD Loads of Priority Cities in Hai and Huai Basins ........................................................... 31 Figure 3.11: Difference between Shallow Groundwater Levels in 1958 and 1998 in the Hai Basin Plains ......................................................................... 33 Figure 3.12: Source of Funds for Capital Construction Projects, 1998 ...................................................... 37 Figure 4.1: Water Resources Constrained Optimization Model ................................................................. 41 Figure 4.2 Existing and Proposed Integrated Water and Wastewater Utilization for Urban Areas, Agriculture and Rural Towns ........................................................................ 49 Figure 4.3: Water Demand and Supply Sources under Different Scenarios ............................................... 51 Figure 4.4: Total Supplies and Demand for Different Probability Flows for the Hai Basins ..................... 52 Figure 4.5: Economic Losses Due to Water Shortage under Different Scenarios ...................................... 53 Figure 5.1: Map Showing 31 Protection Areas in the Hai Basin ................................................................ 62 Figure 6.1: Total Irrigation Area in 3-H in 2000, P75, Base Case ..................................... ........................ 67 Figure 6.2: Crop Production Values under WTO and Non-WTO Conditions in Huai Basin ..................... 68 Figure 7.1: Water Pollution Management Model Decision Support System (WPM-DSS) ........................ 82 Figure 7.2: COD Intensity reduction ......................................................................... 83 Figure 7.3: Urban Municipal Action Plan ........................................................................ 86 Figure 7.4: 2020 COD Pollution Loads for Priority Cities in the Hai Basin under Program 3 of the Action Plan ........................................................................ 90 Figure 7.5: 2020 Toxic COD Pollution Loads for Priority Cities in the Hai Basin under Program 3 of the Action Plan ........................................................................ 91 Figure 7.6: Proportion of COD Load from Major Pollution Sources of Various Programs in Hai Basin.. 92 Figure 7.7: Proportion of COD Load from Major Pollution Sources of Various Programs in Huai Basin ........................................................................ 93 Figure 8.1: Schematic Drawing of Integrated Water Use and Reuse Management System ..................... 100 Figure 9.1: Steps of GW Management Units Foundation ........................................................................ 106 Disclaimer The maps in this report have been prepared exclusively for the convenience of the reader and the denominations used and the boundaries shown on the maps do not imply any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries.  -v PREFACE In the recent National People's Conference meeting (February 2000), Premier Zhu Rongji indicated that the lack of water resources is a serious limitation to economic and social development in China. The Premier noted that demand management including water conservation and rational pricing system should be high on the government's agenda. This statement is highly relevant to the situation in north China. In fact, nowhere in China are water shortages more evident, than in the Hai, Huai, and Yellow (3-H) river basins. Two out of five people in China live in the 3-H basins. The 3-H basins have 45 percent of China's population, 40 percent of China's cultivated area, and 31 percent of China's gross industrial output value, but only about 10 percent of China's water resources and 1/20* the world average annual per capita water availability. Since the 1980s water shortages have been growing in magnitude and frequency of occurrence. Shortages and losses amounted to Y 30 billion in 2000. Increasing reliance on groundwater to compensate for surface water scarcity and pollution has compromised sustainable use of the resource for future generations. Flood damage has also been significant in the 3-H basins. Between 1990 and 1997, flood damage amounted to Y 30.7 billion per year and is growing. Surface and groundwater pollution now represent a growing threat not only to the environment but also to public health. Given the degree of scarcity, pollution also diminishes the resource available for essential beneficial uses. Current institutional arrangements do not permit a coherent integrated approach to solving these urgent and complex problems because of the fragmented nature of institutional mandates, overlapping jurisdictions and the status of decentralization of government. The action plan developed in this Study proposes a set of integrated measures to be adopted by riparian provinces in the 3-H basins and the Ministry of Water Resources. The recommendations include structural changes, policy and nonstructural changes, and institutional changes. If these are applied in the proposed timeframe and with sufficient political and financial commitment, they would ensure that water resources no longer impede the continuing development of north China but rather play an increasingly vital and supportive role in the region's continuing economic and social development. The reports produced for this Agenda for Water Sector Strategy for North China include (a) the executive summary and summary report (Volume 1), (b) the main report (Volunme 2), and (c) the statistical and GIS maps annexes (Volumes 3 and 4). The present summary report (Volume 1) presents data on an aggregated basis for the 3-H basins while the main report (Volume 2) disaggregates data to each individual level I basin (Hai, Huai, Yellow), and the statistical annexes report (Volume 3) presents the data at the level II and III subbasin level. Volume 4 contains a series of GIS maps produced for this study. Volume I is the present printed report and Volumes 2, 3 and 4 are on file and will be made available upon request. Please note that this is the final version of the Volume 1 and incorporates inputs from the workshop held with the Ministry of Water Resources April 16-17, 2001 in Beijing.  - vi - ACKNOWLEDGMENTS This. report was undertaken as a collaborative effort by the Australian Agency for International Development (AusAID); the Ministry of Water Resources (MWR), China; and the World Bank. AusAID provided A$2.5 million for joint-venture consultants Sinclair Knight Mertz and Egis Consulting Australia to work with local consultants, the General Institute of Water Resources and Hydropower Planning and Design (GIWP), the Institute of Water and Hydropower Research- Beijing (IWHR), the Nanjing Institute of Hydrology and Water Resources (NIHWR) and the Chinese Research Academy for Environmental Sciences (CRAES) to undertake a series of specialized studies in key aspects of the water sector. We are grateful to Ministry of Water Resources (Messrs. Dong Zheren, Yu Xingjun and Liu Jianming) for their assistance in reviewing the Terms of References and finalizing the contract. In addition, we are also grateful to many MWR and other specialists, including retired specialists, who participated in many informal meetings to review the study. These consultants provided many different specialized studies for the report in the areas of (a) water pricing (for example, Economics of Price and Demand Management for Efficient Urban Water Resource Use; Review of the Current Water Price System in China; Econometric Analysis); (b) water demand (for example, Irrigation Water Demands; Industrial and Domestic Water Demand Forecasts); (c) water pollution (for example, Water Pollution Management; Water Pollution Control Plan and Ninth Five-Year Plan for the Huai River Basin; Hai River Pollution Control Plan; Industrial Wastewater; Hai and Huai River Basins); (d) groundwater management (for example, Groundwater); (e) flood control (for example, Flood Control and Floodplain Management in China; Hai, Huai and Huang River Basins; Research Report on Flood Control and Loss Reduction); (f) river basin management (for example, River Basin Management and Institutional Reform); (g) investment planning (for example, Investment Planning; Hai, Huai and Huang River Basins). The World Bank provided specialist consultants and staff to undertake the detailed economic modeling (Dr. Garry Kutcher), and hydrologic analysis (Dr. Daniel Gunaratnam). The World Bank team, consisting of Al Nyberg, Wang Lan, Li Zhi, Yu Xiangyong, Zheng Shaoqing, Shi Haifeng, Li Yuanyuan, Daniel Gunaratnam, John Foerster and Harvey Ludwig, also undertook additional detailed analysis of different aspects of the water sector including agriculture, floods, wastewater reuse and water pollution. GIWP staff who also participated include Zhou Jinsong, Li Jianqiang, Hou Jie, Shi Xiaoxin, Yangqing, Guan Chunman, Zhang Jichang. In addition, IWHR staff, including Gan Hong, Wang Dangxian, Pei Yuansheng, Zhang Xiangming, and Tang Kewang, prepared special reports on inigation, hydrology, water demand and input for the 3-H modeling system. The report was written by John Foerster, Daniel Gunaratnam and Harvey Ludwig and was formatted and edited by Meredith Dearborn, Rebecca Kary and Wang Lan. The task manager for the Study was Daniel Gunaratnam (Lead Water Resources Specialist-now retired).  Executive Summary vii EXECUTIVE SUMMARY In a meeting of the National People's Conference on February 2001 Premier Zhu Rongji indicated that the lack of water resources is a serious limitation to economic and social development in China. The Premier noted that demand management, including water conservation and a rational pricing.system should be high on the government's agenda. This statement is particularly relevant to the water situation in North China-the geographic focus of this study. Nowhere in China are water shortages more prevalent than in the Yellow (Huang), Hai and Huai (3-H) river basins. About one- third of China's population lives in the 3-H basins. Also, 31 percent of China's gross industrial output value originates in the 3-H basins, but they contain only about 10 percent of China's water resources.. Forty percent of China's cultivated land area is in the 3-H basins and forms China's breadbasket, producing two-thirds of China's wheat, 44 percent of its corn and 72 percent of its millet-plus a large portion of its oilseeds and cotton. Continued population growth and accelerating industrial expansion over the past half-century have resulted in increasingly severe freshwater shortages, especially in subregions where growth has been greatest. This issue, developing over recent decades, is reaching crisis proportions and is now vividly apparent-it is also recognized that traditional water management methods will not support continued sustainable growth in the 215' century. The acute water shortage and pollution problems in North China will soon become unmanageable, with catastrophic consequences for future generations, unless much more significant, comprehensive and sustained commitments are made to rapidly implement strategies and initiatives to bring water resource utilization back into a sustainable balance. While supply augmentation, including South-North (S-N) transfers, appears to be a necessary part of the solution to water shortage problems; preconditions for its success are the combined requirements of complementary pricing, management, and regulatory reforms in all areas of water resources- including groundwater, water pollution and wastewater reuse. Study Methodology The above water management issues were studied and evaluated to develop more knowledge of: (a) the past. and present situation, and (b) the future impacts of various social and economic growth scenarios and management measures, utilizing the following analytical approaches: (a) A constrained optimization model for water resource allocation to maximize economic benefits in the system-subject to a variety of hydrological, physical and agronomic constraints. The basic economic inputs were derived from forecasts of economic parameters over time and regions; (b) A "knowledge-based" model was designed for the water pollution component in recognition of the degree of spatial and temporal uncertainties associated with pollution load data generated by identified pollution sources; and (c) Institutional issues related to each component of the study (groundwater, irrigation, pollution management, etc.) were investigated separately and complemented with a review of broad basinwide issues based on local expert knowledge and existing Chinese and international literature. The study results were discussed and agreed with Chinese experts; quantitative estimates of shortages and economic losses; related matters were verified with data in the field. Major findings of the study are contained in the following paragraphs.  viii Executive Summary Findings Water Shortages. Since the 1980s water shortages have grown in severity and frequency of occurrence for urban industry, urban domestic consumption, and for irrigated agriculture, creating serious economic losses. Many rivers in the 3-H basins have no flow for five to eight months of the year. This has serious implications for river regimes and estuarial siltation. Shortages would occur despite the government's current programs (modeled as the base case) to: (a) improve irrigation efficiency by 7 to 8 percent, (b) reduce unaccounted-for water in urban and rural industrial and household supplies to 10 to 15 percent, (c) increase water prices by 10 percent per year in real terms till 2050, and (d) treat wastewater in urban areas to enable a minimal 5 percent reuse of urban water supplies. Baseline (2000) demand for water in the 3-H basins [169 billion cubic meters (Bcm) per year] exceeds supply (132 Bcm per year) by 37 Bcm. Water shortages are projected to be 56.5 Bcm by 2050 (equivalent to the total Yellow River flow) unless measures are taken to reduce demands and to augment supplies. Demand management proposed in the action plan, consisting of further increasing water prices and further improving irrigation efficiency would reduce the overall shortages by only 22 percent. Supply augmentation consisting of reusing treated water would further reduce shortages by 4 percent. Reuse of treated wastewater would be directed to priority uses where it has high marginal value; thus irrigation would no longer have this source of supply. However, increased return flows from greater supplies to priority uses would indirectly benefit agriculture. But, the combination of demand management and supply augmentation would reduce overall shortages by only 26 percent. These statistics vividly illustrate the extremely constrained water supplies in the 3-H basins. After applying these demand management and reuse measures, total water shortages of 42 Bcm would accrue (by 2050), causing economic losses of Y 59 billion. Water losses of this extent would create severe economic consequences in the 3-H basins because industries close several afternoons each week and municipal supplies to key cities would be limited to a few hours each day. In addition to the demand management measures and reuse of water noted above, the Study demonstrates that the S-N transfer would be economically justified and would ensure that priority water shortages were reduced by 88 percent (2 Bcm per year) and total water shortages were reduced to 30 Bcm. Additional water supplied from the proposed S-N transfer is not intended for irrigated agriculture consumption but rather for priority uses including urban industry and domestic consumption. The Study does not purport to evaluate the social or environmental feasibility of specific S-N transfer alternatives, but only to demonstrate that S-N transfer schemes could be economically justified within a mix of actions to improve water resource management. It is clear that a complex of measures-irrigation efficiency improvement, wastewater reuse, price increases, and the S-N transfer-are needed to ensure a significant reduction in water shortages. With these measures, serious social and economic distress, due to water shortages, would be averted in the 3-H basins. Agriculture. The 3-H basins produce over 50 percent of the major grains in China-having a value of over Y 120 billion annually. Irrigated agriculture, using residual water from priority users, accounts for two-thirds of agricultural production in the 3-H basins. Out of 415 million mu of land lying within irrigation command areas, only 33 percent is fully irrigated, 52 percent is partially irrigated and 15 percent is unirrigated. North of the Yellow River the irrigated areas are mostly partially irrigated or rainfed. In 1997 the irrigation water shortfall was about 32 Bcm and was estimated to increase to 41.1 Bcm in 2050. Measures to improve irrigation system efficiency for on-farm and main canal systems  Executive Summary ix include: (a) water-saving measures; (b) low-yield land improvement; and (c) large-scale systems rehabilitation. Rehabilitation would reduce the 2050 water shortage to 33 Bcm. The full package of measures, price increases, efficiency improvement, reuse of water, and S-N transfer, would reduce this shortage to 28 Bcm. A 28 Bcm irrigation water shortage would reduce grain production by about 9 million tons (7 percent) by 2050. The value of agricultural production would decline by about Y 2.7 billion (2 percent) because farmers would shift rapidly from low-value grains to higher-value cash crops. However, the proportion of farmer income in coastal provinces (e.g. Hebei) derived from farm activities would decline from 39 percent of total income (in 1999) to 25 percent in 2020. Maintaining and improving household food security would depend substantially upon household income and whether farmers are net producers or consumers of grain. Irrigation management and water pricing reforms would play a very important role in ensuring farmers could sustainably optimize crop production per unit of water supplied. Water Pollution. Surface and groundwater pollution are very serious environmental and public health problems. Given the degree of water scarcity, pollution also diminishes the resources available for essential beneficial uses. Pollution also represents a growing constraint to achieving national development objectives. Currently, over 80 percent of river lengths in the Hai and Huai basins are classified as very highly polluted and cannot meet any designated beneficial use. The annual opportunity cost of forgone water reuse benefits incurred by not treating wastewater were estimated at Y 4.0 billion in 2000, increasing to Y 23 billion in 2050. Major groups of polluters include urban industry, urban municipal, rural industry, livestock operations, and rural municipal. Total combined oxygen demand (COD) generation in the Hai and Huai basins was estimated to be 12.2 million tons in 2000. Over 50 percent of this load comes from rural sources, sources that escape regulation and remain essentially uncontrolled. Some 25 percent is generated solely by the urban-based paper industry. Other highly polluting industries include: (a) chemical, (b) brewing and distillation, (c) food, (d) pharmaceutical, and (e) textile. About 3 million tons are generated in 10 cities in the Hai and Huai basins. The current government program that promotes modemization of production technology and wastewater reuse by urban industry is expected to reduce loads to 9.3 million tons by 2020. Govemment monitoring and enforcement programs are having limited impact because of selective regulatory application, weak enforcement at the local levels, the absence of mass-based standards, and inappropriately high standards that are incapable of being met-given existing technology levels, affordability, and minor cost of infraction penalties. Rural pollution sources such as livestock operations, rural industry and towns remain essentially uncontrolled but represent over 50 percent of the total load. The toxic pollution load is undocumented but estimated to be about 1.7 percent of the total COD loads, representing a significant threat to public health and aquatic systems. Although loads from urban and rural industry are projected to decrease, contributions from other sources would continue to grow, and water quality would continue to decline-unless remedial measures are adopted. These high pollution loads would continue to increase the cost of treatmnent for water supply, lower public health standards, dimninish the existing water resource base and impose higher costs on future generations. Structural remediation measures focus on industrial wastewater pretreatment and intemal reuse of process water, pollution prevention programs [including cleaner production, municipal wastewater treatment plants (WWTPs) and combined industrial and municipal WWTPs], wastewater reclamation for urban uses, irrigation, and artificial groundwater recharge with wastewater and floodwaters.  x Executive Sumwmary The proposed efficiency improvements, reuse, higher water prices and the S-N transfer would; (a) make more water available, and (b) reduce demand. Thus, in 2020 more water should be available under the base-case scenario. This additional water would dilute pollutants discharged to the sea; however, unless the quantities of COD generated can be reduced, the loads may increase. The current Study calculated COD load generation for 2000 and 2020 under the base case (current policy structure) and the action plan case (treatment, pollution prevention and reuse in urban areas; treatment and pollution prevention for rural industry; reuse and latrines for rural domestic sources; and settling ponds for livestock operation). The effect of implementing the antipollution program was to reduce loads generated within the Hai and Huai basins-this was estimated to improve quality by one class, for.example from Class V+ to IV by 2020, which implies that COD would decline from more than 30 milligrams per liter (mg/i) to 20 mg/l. Floods. The magnitude of peak flows in the main rivers and tributaries remain larger than flood storage capacity afforded by reservoirs and floodplains. In addition, extensive human settlement and erection of infrastructure in the floodplains have significantly increased the cost of flood damage, especially in Anhui, Beijing, Jiangsu, and Hebei. Key cities and major industries remain inadequately protected from floods-between 1990 and 1997 flood damages averaged Y 30.7 billion annually. The current flood management strategy focuses on: (a) protecting regions at risk of flooding (including lowlands between levees, tributaries and estuaries; flood areas; and detention basins); (b) rehabilitating reservoirs and levees requiring major repair works; (c) increasing the discharge capacity of rivers; and (d) improving flood control standards. But, despite these efforts, flood damages are increasing in the 3-H basins. Flood protection is a substantial drain on public finance, given the extent of floods in North China. There is need to develop a methodology to minimize flood damage to key assets by assigning higher protection levels to these areas and lower protection levels to areas with lower-valued assets. Occupation of the floodplain areas between levees remains a serious problem, but given the dearth of arable land and intensive population pressure, only partial remedies such as implementing damage mitigation strategies can be applied. These measures include the construction of polders, river training works, flood zoning and regulations on land use, and resettlement assistance. The use of detention basins is equally problematic as they are widely inhabited for similar reasons-removing inhabitants from these areas is not a viable option. Flood forecasting and warning systems are already in use in the 3-H basins, however, improvements based on experiences with the present methodology are proposed. Groundwater. Increasing reliance on groundwater to compensate for surface water scarcity and pollution has compromised sustainable use of the resource for future generations. Current water supplies are so dependent on groundwater resources that limiting extraction would dramatically increase water shortages. In addition, groundwater is insurance for dry years when surface water is scarce, but this insurance has almost disappeared because of excessive abstractions. In the Hai basin sustainable groundwater supplies are estimated to be 17.3 Bcm, while 1998 withdrawals were 26.1 Bcm, indicating annual over extraction is as high as 8.8 Bcm. As a result, deep and shallow groundwater tables in the Hai plains have dropped by as much as 90 and 50 meters, respectively. Anecdotal evidence indicates that deep wells around Beijing are now drilled to 1,000 meters to tap fresh water, adding substantially to the cost of supply. At the level of the entire Huai and Yellow basins, groundwater extraction may be lower than resource availability, but many localized areas show signs of unsustainable extraction. But, in the Hai basin aquifers throughout the basin are severely overpumped. Other side effects of unsustainable exploitation include salinity intrusion in 72 areas of coastal provinces covering an area of 142 square kilometers, and ground subsidence of several meters in Beijing, Tianjin, Taiyuan, Shijiazhuang, and Shanghai-causing Y 1.4 billion in  Executive Summary xi damage to structures during the last decade, lowering flood protection and exacerbating waterlogging in urban areas by lowering drainage. Although the government has a groundwater monitoring and control program, current efforts are insufficient to reduce abstractions to a sustainable level. Restoring groundwater aquifers to levels of the recent past is largely impossible, and the best efforts will only halt further declines in water levels and pressures-although localized restoration may be possible. Restoration of groundwater levels at specific locales may have beneficial environmental impacts such as reducing or preventing salinity intrusion or preventing ground subsidence. Institutions. There are many dimensions to China's water problems, including quantity, quality, temporal and spatial distribution, the condition of the water storage and distribution infrastructure, and the management of that infrastructure. The issues are complex and interrelated and include floodplain management, resource allocation and protection, pollution control, demand management, conflict resolution, and institutional arrangements to ensure sustainable economic and environmental development. Current institutional arrangements inhibits a coherent integrated approach to solving these urgent and complex problems because of the fragmented nature of ministerial mandates and uncertain relations between the central and provincial governments. Existing river basin commissions operate under the aegis of the Ministry of Water Resources and lack the authority to impose river basin management over other ministries and provinces. Current water allocation principles are based on periodic negotiations between riparian provinces using real time monitoring and river forecasting modeling-this process essentially reacts to past climatic events rather than anticipating future eventualities. The major issues arising with current groundwater management inciude: (a) possible interference in the planning process by the realities of economic development and the urgent need to find water, (b) multiple and overlapping responsibilities by different government departments and (c) insufficient monitoring of both groundwater extraction and groundwater quality. The institutional aspects of water resource management that require further strengthening include water resource allocation (both surface and groundwater) between and within river basins and sectors; regulation and enforcement; water resource protection including pollution control, environmental and floodplain management; demand management; financing and incentives; and service delivery organization. To optimize economic efficiency, water allocation should be based on market principles- rather than on administrative planning principles. Concepts of social and environmental equity can be introduced into a market-based system. Resources and service charges for all sectors are currently set at levels that inappropriately reflect the degree of scarcity or cost of service delivery promoting excessive consumptive use and imposing uneconomic prices on water supply companies. This means that prices to industrial and household consumers who have priority use should be increased, because the water use in these subsectors has a higher marginal value. Agriculture uses almost 75 percent of the water in the 3-H basins, and future trends indicate that this sector will receive declining supplies. Improving management of irrigation schemes and irrigation efficiency through improved technology would ensure that water savings could be distributed within agriculture to extend irrigated areas. Rehabilitating and completing surface irrigation and drainage systems, including the installation of control structures and water measuring devices to improve efficiency, would produce local benefits.  xii Executive Summary Action Plan Recommendations Instftutional Management. It is crucially important to manage and operate water resources on a basin basis and eliminate overlapping and conflicting management authority. Consequently, it is recommended that River Basin Coordinating Councils (RBCNs) be created in each of the 3-H basins, controlled by boards with balanced representation from central and provincial governments and local agencies. (Given the perilous state of Hai basin resources, introducing the new institutional structure might be initiated in that basin on a priority basis.) These Councils would be supra agencies with the authority to manage surface and groundwater in a comprehensive integrated manner- interministerially, across administrative boundaries, and between sectors. Such authority suggests a strong "top down" approach to basin coordination, but this would be balanced by a "bottom up" element through the coordination and participation of lower jurisdiction bureaus, water user associations, etc. These RBCNs would have the authority for determining water resource allocations and developing water resource policies for optimal basinwide water use. The existing River Basin Commissions (RBCMs) might serve as the working arms for the RBCNs, including review of water charges-for all sectors. Other elements of institutional management reform would include: (a) ensuring that a single agency was responsible for issuing permits for water extraction; (b) enlarging the scope of municipal permits, that receive imported water, to ensure cost coverage of all "water handlers," including water supply, water uses, and wastewater treatment, to ensure optimal water use; and (c) transferring management of irrigation districts to local institutions following appropriate consultations. Additionally, provincial water resource coordinating committees would be established to manage water resources at the local levels. Water Scarcity and Water Resource Development. The proposed action plan recommends two key demand management measures to reduce water demands to minimum feasible levels: (a) water price increases for all sectors to appropriately reflect the cost of supply and scarcity; and (b) a series of measures for increasing water use efficiency in all sectors. However, demand management measures alone would be insufficient to match available basin supply with demand. Hence two supply augmentation measures are proposed, namely: (i) systematic increase in reuse of treated wastewaters; and (ii) interbasin S-N water transfers. Wastewater Reuse. Treated municipal wastewaters in industrial countries represent a very valuable source of supplemental water for industrial water supply and for irrigation of urban area green zones and agriculture generally. Hence provisions for planning municipal sewerage systems to facilitate reuse is proposed. Planned reuse would be subject to regulatory control through permits to ensure public heath protection. The action plan proposes investments of Y 119 billion and Y 149 billion in the Hai and Huai basins, respectively, for municipal treatment, sewerage, cleaner production and pretreatment. The following factors (in order of importance) were considered in identifying cities for treatment plant upgrading; (a) toxic waste and COD discharge, (b) location upstream of water supply intakes, (c) water shortages, (d) location upstream of irrigation intakes, (e) unsustainable groundwater pumping, and (f) potential for artificial recharge. Interbasin Transfers. Because interbasin transfers are very expensive all other demand management and supply augmentation measures should first be implemented to minimize transfer volumes. Supply augmentation, via transfers, requires improvement, rehabilitation, and expansion of all city supply, wastewater treatment and drainage systems on the S-N transfer routes to ensure more efficient water distribution and drainage. Specific feasibility studies and environmental/ social assessments would need to be carried out separately in the context of planning for S-N transfer projects.  Executive Summary xiii The scarcity and resource development actions proposed are summarized as follows: 1. Increasing the efficiency of irrigation systems by a further 10 percent; 2. Increasing wastewater reuse from 5 to 15 percent for priority supplies; 3. Increasing prices by a further 10 percent per year over existing prices (real terms); 4. Increasing water supplies by about 19.7 Bcm/year via S-N East and Middle transfer routes; 5. Rehabilitation and expansion of city water supplies; 6. Intrabasin water allocation; and 7. Intersectoral water allocation. Groundwater. Massive overabstraction of groundwater in recent years is clearly not sustainable in the long run and immediate action to redress the imbalance between recharge and abstraction is required to prevent complete loss of this resource. The key actions include: (a) definition of groundwater management units with determination of sustainable yields; (b) preparation and implementation of groundwater management plans; (c) allocation licensing, by a single department, linked to sustainable yield and coupled with rigorous monitoring and enforcement of abstraction and pollution limits; (d) licensing of well construction drillers; (e) development of a national groundwater database; and (f) preparation and implementation of a groundwater pollution control strategy, including provision in selected cities for groundwater recharging by spreading treated wastewater effluents and/or floodwaters on permeable areas, and for injection of treated effluents to establish groundwater mounds to inhibit salinity intrusion into freshwater aquifers. Agriculture. Agriculture is currently and will remain, the largest user of water in China; however, its share of water use will decline as municipal and industrial water demands increase. There are important social and political (including food security) implications of maintaining adequate water supplies to rural areas for agriculture. At the same time, the cost to government of supplying large volumes of water to low value-added agricultural activity is not sustainable. The need to increase participatory mechanisms and to continue management reforms and develop innovative models for irrigation district management, including joint stockholder cooperatives, water supply companies, water user associations and self-financed irrigation and drainage districts is well understood and they will continue to be promoted. Proposed improvements parallel existing government programs, particularly the comprehensive agricultural development (CAD) program, the large irrigation district (LIS) program, and the water-saving program. These programs are focused on demand management, increased efficiency of water use, and appropriate pricing without any supply augmentation. Increased commitments to these objectives are important. A key aspect that needs strengthening, in conjunction with the participatory institutional and water pricing measures, is water measurement and volumetric water charging. Irrigation water charges are stated in terms of cubic meters of water use, but in reality adequate water measurement at the lower end of the irrigation systems is lacking and the actual calculation of the water charge is based on the irrigated area and an average water usage rate, rather than on a measured delivery amount. Although there are no accurate data for generalization, anecdotes suggest that when transparent water measurement and volumetric charging are introduced in specific areas there are no major distortions due to water shortages. The Government and the World Bank have strongly focused (and will continue to do so) on "Self-Managing Irrigation and Drainage Districts" (SIDDs), which have fostered the development of farmer "Water User Associations" (WUAs) and the creation of financially autonomous Water Supply Organizations, which sell bulk water to the WUAs. Water measurement and volumetric charging in conjunction with WUAs must remain a high-priority initiative. The 50 percent of China's arable land that is irrigated produces about 75 percent of the national agricultural output, but urban and industrial encroachment continually reduces the land  xiv Executive Summary available for agriculture. With China's very low "arable land/population" ratio it is crucial that efficiency be optimized on irrigated land-where yield potential is highest. However, most irrigation and drainage systems were constructed in the 1960s, often with substandard design and quality and some were left incomplete, and are in need of rehabilitation and upgrading including improvements in water conveyance and field efficiencies. These facilities must be rehabilitated/ renovated as financing becomes available-but it is important to identify investments, which benefit individuals and which benefit the public at large to ensure repayment is appropriately allocated. An integrated holistic approach to effect real water saving in the agricultural sector is recommended. The integrated approach does not rely solely on engineering measures, unlike the present National Irrigated Agricultural Water Saving Program, but instead focuses on: (a) physical improvements to canal and on-farm irrigation and drainage systems; (b) agronomic measures; and (c) irrigation management measures. In addition, it would be appropriate to support agricultural research that focuses on optimizing output per unit of water consumed-instead of the traditional focus on output per unit of land. Flood Protection. A series of strategic projects for improving flood protection are proposed, including: (a) additional dam and reservoir construction; (b) road construction to serve as auxiliary dikes and as flooded area escape routes, and other safety measures; and (c) upgrading of flood forecasting and warning systems, including the development of hydrodynamic and decision support models with flood progression mapping and other nonstructural flood control warning and protection measures. A methodology is needed to prioritize flood protection areas with priority attention accorded the. protection of densely built-up residential and industrial areas where the benefit-cost ratios would be maximized-although, in general, flood protection should be consistent with overall basin needs to ensure a reasonably equitable distribution of flood hazards. But, it is economically profitable to protect areas with higher potential damage, such as cities like Tianjin, with a higher safety level than areas with lower potential damage such as rural areas, hence the concept of zones. Some 31 protection areas, or zones, were identified in the Hai basin. The guiding principles for planning nonstructural measures for seriously affected lowland areas include: (a) using modem technology in flood forecasting and flood warning; (b) using measures to reduce the frequency and intensity of lowland use; (c) assigning priority to achieving a high standard of safety for residents with respect to buildings, refuges, and evacuation routes; (d) assuring that emergency response plans are effective and regularly tested; (e) using community education to raise and maintain awareness of the flood risk and ensure that the populations at risk are prepared and would respond during flood emergencies; and (f) exploring options for compensation, flood insurance and related matters. Water PoUution. Over the past decade water quality has improved in some of the larger rivers, but the remainder have continued to deteriorate-as have freshwater lakes and coastal waters. Some of the problems are technical, but the pivotal constraints are primarily institutional, managerial, and financial. Considerable progress has been made in reducing pollution from state-owned industries, with significant gains coming from the closure of unprofitable and heavily polluting industries in large urban areas. The proportion of industrial wastewater passing through wastewater treatment plants increased during the 1990s, but the effectiveness of the treatment process, defined as the proportion of treated wastewater meeting national standards declined. This suggests that while the regulatory system provides incentives for installing treatment facilities, it. provides less incentive to operate them effectively. Structural, nonstructural and institutional investments and programs are recommended to strengthen existing government efforts to improve declining water quality trends. Urban municipal pollution would be mitigated through the improvement of municipal sewerage systems, including collection sewers and treatment plants with capacities for receiving and treating industrial wastewater. This would result in large savings, both to the municipality and  Executive Summary xv industries, because of scale economies in removing degradable organics (with the provision that participating industries would first remove toxic and other objectionable substances through in-plant treatment before discharging to the municipal system). The treated municipal effluent would be reused, to the extent practicable, as water supply for irrigation and industrial use. In addition, the municipal systems would include provisions for effective use of on-site excreta disposal units for homes and buildings not connected to municipal sewers. Industries in urban areas would reduce waste production through the use of cleaner technology and would dispose of wastewater, after removal of toxic materials, by discharge to municipal systems, the environment, or by reuse. Rural industries, including livestock operations and township and village enterprises (TVEs), represent a large pollution source that has received minimal attention. Livestock operators would be required to utilize stabilization treatment ponds, and TVEs, that could afford such, would be required to utilize appropriate treatment facilities-TVEs that could not afford to comply would plan a gradual phase-out. The overall pollution control program would also include attention to promoting adequate solid waste management in both urban and rural sectors, to ensure these wastes would not be left unmanaged to infiltrate waterways through surface runoff. The proposed nonstructural investments include: (a) review and revision of water quality standards, both ambient and emission-with emission standards based on mass rather than concentration units-and assurance that the revised standards are practicable and appropriate for use in the 3-H basins and China; (b) establishment of a permit system whereby municipalities can control waste discharges from industries, including effective monitoring and performance enforcement; (c) use of the environmental impact assessment process for all major waste polluters to reinforce the permit system operations; and (d) coordination of the basin water-quality monitoring programs operated by the State Environmental Protection Administration (SEPA) and MWR to eliminate overlapping and fill important gaps. Costs. The cost of implementing the proposed action plan is rather substantial, estimated at Y 1,350 billion (real terms) over the next 25 years. However, not investing in the action plan would be even more costly. Action Plan Implementation Cost (Constant 2000 Y Billion) 2000-2005 2006-2010 2011-2015 2016.2020 2021-2025 Total Water Supply New & Rehab. 135 142 19 13 4 313 Water Pollution Control & Reuse 54 81 67 67 17 286 Irrigation Efficiency Improvement 54 58 54 20 19 205 Groundwater Recharge & Rehab. 39 48 41 24 0 152 Flood Control 131 159 59 34 11 394 Total 412 488 240 158 52 1,350 Conclusion It is clearly feasible for China to alter its water management practices, including structural, nonstructural, and institutional modifications, to improve the water balance in the 3-H basins sufficiently to support all essential beneficial uses-including agriculture, urban water supply, industrial water supply, and protection of ecological resources to support continued sustainable development. Implementing the institutional reforms and achieving the objecdves of the new strategy will require strong and immediate government support in implementing new management measures. Implementation will alter prevailing lines of authority and practices and replace many existing practices-strong resistance to these changes will need to be overcome.   1. INTRODUCTION A. THE PURPOSE OF THE STUDY Continuing and accelerating growth of population and industry over the past century in China has resulted in increasingly severe problems related to freshwater shortages, especially in China's subregions where growth has been greatest. This is literally a new problem, hardly envisioned even a half-century ago, but it is now being recognized, at the turn of the century, that the traditional and conventional ways of managing the water resources must be markedly modified in order to support continuing sustainable growth in the 21" century. The situation in China is most serious in the country's Hai, Huai, and Yellow (Huang) River basins on the northern east coast of China, called the 3-H basins, which are three of China's most important subcountry areas in terms of economic productivity. The increasing water shortage problem in the 3-H basins has been making continuing growth increasingly difficult, to the extent that the government recognizes the need for prompt critical analysis to formulate an action plan on what to do so that continuing growth would be sustainable. The specific Terms of Reference for the Study are quoted here as follows: "Provide an integrated set of recommendations to the World Bank, MWR [Ministry of Water Resources], and the riparian provinces for addressing (water) problems at the level of the river basin. The recommendations would include, but not be limited to, identification of structural changes in the management and use of water resources, propose recommendations of the policy and regulatory framework for water resources development and management mechanism, procedure and regulatory policy, pricing of water to enhance sustainability of water resources management identification of key projects in the water sector to enhance water supply capability and improve efficiency of water resources utilization" (Concept paper, September 1998). Table 1.1 shows the area of the 3-H basins that belong to different provinces. Figure 1.1 shows the 3-H basins within China. Figures 1.2, 1.3 and 1.4 show the individual Hai Huai, and Yellow river basins respectively. B. THE GENERAL STUDY CONCLUSION The Study's essential conclusion is that it is necessary for China to modify not only its water management practices, including structural, nonstructural, and institutional changes, but also to augment the existing 3-H basins' supply, preferably from another basin. This is so that the water supply in the 3-H basins would be sufficient in quantity and quality and reliable in times of drought to support all essential beneficial uses-including agriculture, urban water supply, industrial water supply, and protection of precious ecological resources-so that continuing development would be sustainable. The present report delineates the recommended Water Sector Strategy and Action Program. Achieving the goals of this new program would require that the government be willing to accept and implement the recommended new management measures and to do this promptly. The government must act with firm determination and the recognition that doing so would disturb many existing practices and would require the establishment of new practices, and that resistance to such changes must be overcome.  2 Chapter 1. Introduction TABLE 1.1: PROVINCE AREAS IN THE 3-H BASES Province/Municipality Total Area Area in 3-H basin catchmnents (krnh) % of total area Autonomous Repion (km2) HaI basin Hual basin Yellow basin in 3-H basins Beijing Municipality 16,810 16,810 100 Tianjin Municipality 11,310 11,310 100 Liaoning Province 145,900 1,710 1 Hebei Province 187,400 171.620 92 Neimenggu A.R. 1,183,000 12,580 153,600 14 Shanxi Province 156,300 59,130 97,090 100 Henan Province 167,000 15,300 88,240 36,040 84 Shandong Province 153,300 29,710 111,570 12,020 100 Hubei Province 185,900 400 ... Anhui Province 139,700 67,310 48 Jiangsu Province 102,600 63,190 62 Shaanxi Province 205,600 133,000 65 Ningxia A.R. 66,400 51,820 78 Gansu Province 454,300 144,750 32 Sichuan Province 570,000 11,080 2 Qinghai Province 721,000 152,500 21 Total 318,170 330,710 793,770 Sources: For province areas: Encyclopedia Yearbook of China 1988. For catclunent areas: IWHR. C. THE STUDY WORK PROGRAM The study was jointly sponsored by the World Bank (WB), the Ministry of Water Resources (MWR), and the Australian Agency for International Development (AusAID). The work was carried out by the World Bank and WB consultants working closely with staff of MWR's research institution, the Institute of Water and Hydropower Research (IWHR), the General Institute of Water and Hydropower Planning (GIWP) in Beijing and the Nanjing Institute of Hydrology and Water Resources (NIHWR), with coordination by the WB task manager, Daniel Gunaratnam. Specific substudies for key aspects of the project were carried out by Sinclair Knight Merz, Egis Consulting Australia and Hassell International, who also worked closely during the project period with the Chinese counterpart institutions mentioned above. D. METHODOLOGY AND STRUCTURE OF THE REPORT Numerous reports have been prepared on China's water sector as a whole, and on individual subsectors and regions, which have furnished valuable background for the study. Two recent reports in particular, covering all of China, furnished a framework for the present study: the first providing consistent long-term water demand and supply projections (IWHR 1999). Second, the Asian Development Bank's "Strategic Options for the Water Sector" (TA 2817 PRC) report analyzed the context surrounding the water sector (the external environment) and its impacts on the water sector itself (the internal environment). This approach was adopted here to provide a framework for the structure of the present report so as to mesh the separate substudies and their individual recommendations to formulate the integrated action plan. The present report builds on these earlier reports in respect of the 3-H region in four main ways: * Information Base: By developing an updated and consistent water resources database for the 30 Class II and HI regions and provinces that comprise the 3-H region. * Analytical Tools: By developing a set of analytical tools to support the analysis of impacts of China's changing society on water resources in the 3-H basins. In particular: (a) water demand projections are based on a generalized demand model utilizing results of a regional economic growth and development model for the 3-H region that includes parameters for population  Chapter 1. Introduction 3 changes, urbanization, rising incomes and income disparity, higher consumption of goods and services, and changing productivity base from agriculture to industry; (b) alternative management options for river water quality are based on a water and waste estimation model that links water use such as urban, rural, domestic and industrial, and irrigated agriculture to waste generation including domestic and process wastes and return flows; and (c) components of the action plan are ranked based on the refinement of the constrained optimization model for the Yellow River Basin (first constructed in 1992) and its extension to the Hai and Huai basins. * Analysis of Issues: By revising and refining the analysis of the key issues facing the 3-H basins, reflecting the detailed database and utilizing analytical tools developed under the study. * Components of the Action Plan: By suggesting a range of policy and tentative project options, bearing in mind current government programs, that constitute a more detailed plan for action than contained in previous reports, combined with the institutional changes and financial arrangements required to ensure that the plan is effective. Figure 1.5 shows the structure and information basis of the report. FIGuRE 1.1: LOCATION OF 3-H BASINS IN CHINA PROVINCES AND RIVER r'brth . BASIN BOUNDARIES th-W b6A-< Le ,t X~~~~~~~~ QN J g . .. SHAMAt  4 Chapter 1. Introduction FIGURE 1.2: MAP OF HAI BASIN .~~~~~~~~~~~ UD LEGEND N ________________________ IWA STR8 T OR C1 T IONROGRAM wBRoL B WINIY OF VIATER FLCEB "R t RGLARE No. P-W, Ft-_B"  Chapter 1. Introduction 5 FIGURE 13: MAP OF HUAI RIVER BASIN 0 IWKDIX LEGEND N 4INA WATER ECTOR ACdN POGRAM WORID IANKMThRY OF WATER OIOLMEB Rb~~~~~~~~~~~~~~~~~~~~ PE "m_ RaU lN% U" A RN-1- ~ ~~~~~I IRUE FIGURE1.4: MAP OF YELLOW RIVER BASIN LEEN N , * AEIWCTRArD RMA _* W _~ ~ ~ ~~~~~~~~~~~~~~~~~~WRD&N-ISRYO AEtRSLRE W :~~~~~~~~~~~~~~~~~~~~~~~~RUBN  pu- 7 O - - 7td' uorztU3l - ow' l 1ai .---- as"