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China: Improving Water Resource Management and Pollution Control in the Hai Basin.

The Hai Basin Integrated Water and Environment Management Project has effectively promoted an integrated approach to water resource management and pollution control in the Hai Basin in northern China and contributed to the restoration and protection of marine environment, ecosystem and biodiversity in the Bohai Sea.

The project was implemented in 16 counties in northern China. Over 20 million people benefited from it.

The Hai Basin spreads over six provinces and the municipalities of Beijing and Tianjin, which account for 15 percent of China's GDP.

It suffered from serious water-related problems, including water pollution, water scarcity, diminishing water supplies and flooding. Water availability per capita in the Hai Basin was only 14 percent of the national average and about four percent of the global average.

Over-exploitation of groundwater, overuse of surface water resulting in inadequate environmental flows, along with groundwater and surface water pollution, led to the decline and deterioration of water resources and damaged the freshwater and coastal environments of the Hai Basin.

The Basin discharges into the Bohai Sea, which is an important ecosystem and fishery resource. However, heavy land-based pollution from urban, industrial, agricultural, and other sources in the Hai Basin, combined with overfishing, reduction of freshwater inflows, and habitat loss, threatened the fishery and steadily diminished many of the Bohai Sea's ecological functions.

To address these problems in the Hai Basin and the connected Bohai Sea ecosystem, the World Bank helped the Chinese Government develop and implement an integrated approach to water and environmental management. The project was designed to play an important role in these efforts.

Integrated water and environment management (IWEM) planning is a key management measure promoted by the project.

It provides the context (within law, policy, institutional arrangements, and operational practices) for the development of practical approaches to carry out top-down, bottom-up, vertical and horizontal cooperation at the basin, sub-basin and county level that redress land-based activities that degrade marine waters.

Another innovative approach introduced by the project is evapotranspiration (ET) management, with the aim of achieving real water savings to eliminate groundwater overdraft and provide more surface water for ecological purposes and as outflow to the Bohai Sea.

Remote sensing and geographic information system (GIS) techniques were used to develop Basin-level ET reduction plans.

Furthermore, the project promoted improved coordination at all levels to overcome the institutional barriers to IWEM.

* Integrated and coordinated management of water resources and environment. The project established a mechanism for cooperation between water and environment departments at the central, provincial, and local levels.

* Reduced discharge of wastewater and key pollutants Annual wastewater discharge in the 16 project counties in 2010 was 129.34 million tons less than that of 2004; COD and NH3-N discharge was 69,758 tons and 7,488 tons less.

* Controlled groundwater over- exploitation Total amount of over- exploited shallow groundwater for agricultural irrigation in the 16 project counties in 2010 was 63.2 percent less than that of 2004; deep groundwater exploitation was down by 46 percent.

* Reduced ET Value In 2010 the 16 project counties had an average ET of 549.6 mm, down by 54 mm from the 2004 level.

* Yingcheng Wastewater Treatment Plant in Hangu District, Tianjin, was built, and financial incentives for wastewater treatment were put in place in the small towns of Tianjin.

* Clearing of key pollutants in the Dagu Canal in the Hai Basin. The project cleaned a total of 6.26 million m3 of pollutant sediment in the Dagu Canal. It also cleared 28,670 tons of oil, 1,820 tons of zinc, and 13,378 tons of total nitrogen from the Canal.

* Public participation Over 400 water users associations were established so that the communities decided themselves on how they manage water resources, particularly on water savings and operation and maintenance of the on-farm water systems.

* Practical approaches to improving water and environment management were developed, which can be replicated throughout the Hai Basin and in other Chinese basins.

Bank Contribution and Partners

The Global Environment Facility (GEF) provided a grant of US$16.96 million. The project was jointly implemented by China's Ministry of Water Resources and the Ministry of Environmental Protection, as well as the municipalities of Beijing and Tianjin and four provinces. The central and local governments provided US$17.56 million in counterpart funding.

The project provided innovative ideas, approaches and successful experience for China to build a "resource-saving" and "environment- friendly" society, including practical collaboration between multiple departments, improving water-related regulatory systems and institutions, strengthening knowledge-based management of river basin water and environment, establishing grassroots water management and service systems, and raising public awareness and participation.

Better water use and pollution control in the Basin has improved residents' health and living standards, eliminated odors and ameliorated aesthetic and recreational conditions.

Farmers also benefited from more efficient consumption-based irrigation management, which increased water productivity, crop yields and household incomes.

In the longer term, benefits will also accrue to fishers and people fringing the Bohai Sea through improved water quality, fishery stocks and biodiversity.

"It used to take us 20-30 days to irrigate the farmland I work on. Now 7 days is enough," said a farmer at the project management office's meeting with villagers in Beidonggu Village of Guantao County, Hebei Province.

"In my village, before on average, one household needs three people for farm work. Now most households need only one member in the fields. And it no longer requires male labor. So men can seek for more remunerative, off-farm work and contribute to household incomes more," said a farmer at the project management office's meeting with villagers of Wuji Village of Cheng'an County, Hebei Province.

China Confronts Mounting Piles of Unsold Goods

After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.

The glut of everything from steel and household appliances to cars and apartments is hampering China's efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.

The severity of China's inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government - all part of an effort to prop up confidence in the economy among business managers and investors.

But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Market survey, had been set in June. May and July also showed increases.

"Across the manufacturing industries we look at, people were expecting more sales over the summer, and it just didn't happen," said Anne Stevenson-Yang, the research director for J Capital Research, an economic analysis firm in Hong Kong. With inventories extremely high and factories now cutting production, she added, "Things are kind of crawling to a halt."

Problems in China give some economists nightmares in which, in the worst case, the United States and much of the world slip back into recession as the Chinese economy sputters, the European currency zone collapses and political gridlock paralyzes the United States.

China is the world's second-largest economy and has been the largest engine of economic growth since the global financial crisis began in 2008.

Economic weakness means that China is likely to buy fewer goods and services from abroad when the sovereign debt crisis in Europe is already hurting demand, raising the prospect of a global glut of goods and falling prices and weak production around the world.

Corporate hiring has slowed, and jobs are becoming less plentiful. Chinese exports, a mainstay of the economy for the last three decades, have almost stopped growing.

Imports have also stalled, particularly for raw materials like iron ore for steel making, as industrialists have lost confidence that they will be able to sell if they keep factories running.

Real estate prices have slid, although there have been hints that they might have bottomed out in July, and money has been leaving the country through legal and illegal channels.

Interviews with business owners and managers across a wide range of Chinese industries presented a picture of mounting stockpiles of unsold goods.

Business owners who manufacture or distribute products as varied as dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steel beams for false ceilings said that sales had fallen over the last year and showed little sign of recovering.

"Sales are down 50 percent from last year, and inventory is piled high," said To Liangjian, the owner of a wholesale company distributing picture frames and cups, as he paused while playing online poker in his deserted storefront here in southeastern China.

Wu Weiqing, the manager of a faucet and sink wholesaler, said that his sales dropped 30 percent in the last year and he has piled up extra merchandise. Yet the factory supplying him is still cranking out shiny kitchen fixtures at a fast pace.

"My supplier's inventory is huge because he cannot cut production - he doesn't want to miss out on sales when the demand comes back," he said.

Part of the issue is that the Chinese government's leaders have decided to put quality-of-life concerns ahead of maximizing economic growth when it comes to two of the country's largest industries: housing and autos.

Premier Wen Jiabao has imposed a strict ban on purchases of second and subsequent homes, in the hope that discouraging real estate speculation will improve the affordability of homes.

The ban has resulted in a steep decline in residential real estate prices, a sharp fall in housing construction and widespread job losses among construction workers.

At the same time, the municipal government in Guangzhou, one of China's largest cities, has sharply reduced this summer the number of new car registrations it allows so as to reduce traffic congestion and air pollution.

Municipal officials from all over China have been flocking to Guangzhou to ask for details. Xi'an, the metropolis of northwestern China, has already announced this month that it will limit car registrations, although it has not settled on the details.

The Chinese auto industry has grown tenfold in the last decade to become the world's largest, looking like a formidable challenger to Detroit. But now, the Chinese industry is starting to look more like Detroit in its dark days in the 1980s.

Inventories of unsold cars are soaring at dealerships across the nation, and the Chinese industry's problems show every sign of growing worse, not better.

So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of capacity - far below the 80 percent usually needed for profitability.

Yet so many new factories are being built that, according to the Chinese government's National Development and Reform Commission, the country's auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.

"I worry that we're going down the same road the U.S. went down, and it takes quite some time to fix that," said Geoff Broderick, the general manager of Asian operations at J. D. Power and Associates, the global consulting firm.

Automakers in China have reported that the number of cars they sold at wholesale to dealers rose by nearly 600,000 units, or 9 percent, in the first half of this year compared to the same period last year.

Yet dealerships' inventories of new cars raised 900,000 units, to 2.2 million, from the end of December to the end of June. While part of the increase is seasonal, auto analysts say that the data shows that retail sales are flat at best and most likely declining - a sharp reversal for an industry accustomed to double-digit annual growth.

"Inventory levels for us now are very, very high," said Huang Yi, the chairman of Zhongsheng Group, China's fifth-largest dealership chain. "If I hadn't done special offers in the first half of this year, my inventory would be even higher."

Manufacturers have largely refused to cut production, and are putting heavy pressure on dealers to accept delivery of cars under their franchise agreements even though many dealers are struggling to find places to park them or ways to finance their swelling inventories.

This prompted the government- controlled China Automobile Dealers Association to issue a rare appeal to automakers earlier this month.

"We call on manufacturers to be highly concerned about dealer inventories, and to take timely and effective measures to actively digest inventory, especially taking into account the financial strain on distributors, as manufacturers have to provide the necessary financing support to help dealers ride out the storm," the association said.

Officially, though, most of the inventory problems are a nonissue for the government.

The Public Security Bureau, for example, has halted the release of data about slumping car registrations. Data on the steel sector has been repeatedly revised this year after a new method showed a steeper downturn than the government had acknowledged.

And while rows of empty apartment buildings line highways outside major cities all over China, the government has not released information about the number of empty apartments since 2008.

Yet businesspeople in a wide range of industries have little doubt that the Chinese economy is in trouble.

"Inventory used to flow in and out," said Mr. Wu, the faucet and sink sales manager. "Now, it just sits there, and there's more of it."

Shrinking Economy

Beijing's economic statistics for July, appear to have been "made up," as the Chinese now characterize numbers.

One figure, whether accurate or not, was especially illuminating. Last month, the production of electricity, according to the National Bureau of Statistics, increased 2.1% year-on-year.

There is growing evidence that officials have been artificially inflating the closely followed electricity number to make the economy appear stronger than it actually is, but even a 2.1% increase indicates China has flat - lined.

Historically, the growth of electricity in that country has outpaced the growth of its gross domestic product, the most widely followed measure of economic performance.

The conclusion that China's economy is probably shrinking is confirmed by manufacturing surveys and prices indexes, but the most telling indicators are the mountains of unneeded commodities.

Copper in recent months has been stockpiled in parking lots, and iron ore has been stored in granaries. Ships loaded with unwanted coal have been waiting off Chinese ports.

That's why China analysts are talking about the "heart attack" economy, and Anne Stevenson-Yang of J Capital Research uses the phrase "rigor mortis."

Most analysts, however, don't worry. They believe China's problems are temporary and will soon be forgotten because the country is in a super cycle upwards.

They're wrong. After 35 years of virtually uninterrupted growth, China has hit an inflection point. The three primary reasons that created more than three decades of growth either no longer exist or are disappearing fast.

The country is no longer reforming, the international environment is not benign, and the "demographic dividend"-an extraordinary bulge in the workforce-is turning into a demographic bust.

It is in this adverse context-not the favorable one of the last three decades-that Chinese leaders will have to act. In other words, they will no longer be propelled by trends; going forward, they will have to succeed in spite of them.

Unfortunately for them, Chinese leaders cannot do what is necessary to jumpstart growth. Everyone agrees they have to stimulate domestic consumption-the investment-led, export-heavy model is unsustainable.

Yet Beijing did not try to change this model a half-decade ago when it would have been much easier to do so.

Then, other countries were willing to take China's products and gave Chinese economic planners a cushion of fat export earnings. Now, with declining markets abroad, China cannot earn big profits from sales to foreign customers.

Without the export cushion, the transition to a consumption-led economy in China will cause dislocations that are considered politically unacceptable.

The Chinese economy is now in a new super-cycle. This time, the direction of the cycle, which could last decades, is down. Yes, China has passed its peak and is unable to implement necessary reforms.

So what does this mean for us here in the United States? Many policymakers believe severe troubles in China will rock the United States so we need to support Chinese growth. Clearly, a sudden failure there would roil global markets because institutional investors will be caught by surprise.

They appear to more or less accept Beijing's official numbers, which portray an economy growing at just under 8%. When they no longer believe the Chinese government's line, we could see markets tank.

Moreover, multinationals will be hurt because they have made big bets on China, and even now problems there are already denting earnings. Ask Caterpillar, for instance.

Yet not all the effect will be negative for us. Smaller American manufacturers, for instance, will undoubtedly be helped as they will face less competition from their Chinese counterparts. The return of manufacturing to America will accelerate.

So we don't have to be overly concerned about China's coming failure. The truth is that America depends on China much less than China depends on the United States. Take China's trade surplus in goods.

Last year, China's surplus against the U.S. amounted to $295.4 billion. China's overall goods surplus was $155.1 billion. That means its surplus against us was an unimaginable 190.5% of its overall trade surplus. China, in short, has an economy geared to selling things to the United States.

And, incredibly, China's dependence on the United States is increasing at this moment. In the first seven months of this year, Chinese exports to Europe fell 3.6% over the same period last year. How about China's exports to America? They jumped 11.4%.

The United States, on the other hand, does not have an economy geared to China. Trade for the United States- and especially its trade with China- is a negative for its gross domestic product. This is not to say that trade does not, in the larger picture, benefit America. It certainly does. But it is to say American economic success does not depend on China's.

And, contrary to a general belief, the U.S. would be better off without Beijing funding its federal deficits. Our problem has been too many international and domestic investors wanting to lend to Washington, not too few.

So when China's economy collapses, Americans will realize they have less stake in the Chinese miracle than they have been led to believe.
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Publication:Cambodian Business Review
Geographic Code:9CHIN
Date:Oct 31, 2012
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