Closing China’s water availability gap results in $21 billion in net savings

A new report by McKinsey finds that in China, 55 different solutions exist to close its imminent water availability gap that actually results in a net savings, rather than expenditure, of $21 billion by 2020. The Green Leap Forward has reviewed the rapport.


The International Consultancy Company, McKinsey, released a report last month called Charting Our Water Future: Economic Frameworks to Inform Decision-Making, in which it unveiled its Water Availability Cost Curve – a cost-abatement analysis. The report aims to accomplish three things: First, to paint the supply-demand picture for water from now till 2020; second to present its economic analysis of a menu of options to enhance water availability to make up for water supply deficit; and third to explore the implementation challenges of sustainable water management policy through the lenses of institutions and stakeholders.

The report is commissioned by the Water Resources Group 2030, which is a partnership constituted by McKinsey & Company, the World Bank Group and a consortium of business partners.

This text summarizes a reviewed of the report written by The Green Leap Forward.

China is, according to McKinsey, facing major challenges in the future. In the next two decades China’s water demand will outgrow supply. By 2030, China will experience a water supply deficit of 25 percent.

Water demand

Agriculture will remain the dominant sector for water demand. Agriculture accounts for 65% of demand today. However agricultural water demand will decline to 50 percent of overall demand in 2030 as industrial and urban demand grows nearly five times as fast (2.7 and 2.9 percent per year) as fast as agricultural demand growth.

With respect to industrial demand growth, thermal power is the biggest culprit. By 2030, thermal power alone will result in 82 billion cubic meters of water demand, a whole 10 percent of China’s projected entire aggregate water demand of 818b m3, and 31 percent of the whole industrial sector’s demand of 265b m3.

McKinsey attributes the demand growth to a rapidly growing middle-class. The middle-class is expected grow from 4 percent of the population in 2005 to 56 percent in 2030, leading to increased water consumption.

Only 38 percent of municipal water is treated, far below what is acceptable.  While a much higher proportion of industrial effluent–91 percent– is treated, the release of metals, chemicals and other toxins into the water supply remain a big problem.

Water supply

By 2030, China’s water supply will reach 619b m3, significantly short of aggregate demand of 818b m3 – a deficit of 25 percent. Eight of 10 major water basins will experience water shortages.

China has a rich base of renewable water at 3,507b m3, but unfortunately only 565b m3 is accessible and reliable today. Because of the vast geographical expanse and diverse conditions, local availabilities matter. The south region is water-rich while the north region is water-scarce.

Pollution changes the assessment of available water. Because the quality of some water is so low that it cannot be considered supply, the “quality-adjusted” supply is thus lower than the quantity-only supply, exacerbating water availability deficit. For instance, some 21 percent of surface water nationwide is unsuitable in quality for even agriculture; in the Hai river basin, that proportion is 50 percent.

A Water Availability Cost Curve for China

The report identifies 55 levers to close the water availability gap of 201b m3 by 2030. This would require an annual investment of $7.8b, but ultimately result in an aggregate net savings of $21.7b.


Click image to enlarge. Source: Charting Our Water Future, McKinsey,

Most of the savings, some $24 billion, come from industrial efficiency measures, e.g. thermal power, wastewater reuse, pulp and paper, textiles and steel. But as discussed above, just as geography matters in the water supply scenario, a basin-by-basin approach will have to be taken to assess the most cost-effective levers, particular for supply-side solutions.