A new research paper published by the World Bank suggests that consumers in China would be willing to pay up to 3% of their annual income continuously over a five year period to improve water quality. It could also provide some useful pointers on issues the water companies will need to address in the stakeholder engagement Ofwat now wants them to undertake in the upcoming AMP6 business planning process.

A report earlier this year by the Joseph Rowntree Foundation, one of the largest social policy research-and-development charities, defined "water poverty" in the UK as when households spend 3% or more of their income on water bills.

Valuing water quality improvement in China : a case study of lake Puzhehei in Yunnan province is the report of an economic valuation study conducted in Yunnan which aims to estimate the total value of a real investment project to improve the water quality of Lake Puzhehei.

Significant water quality improvement is needed in the Yunnan Province where the lake, Lake Puzhehei, is located. Only 40.5% of wastewater is treated in the Province, where most of the main lakes and rivers suffer from organic pollution, particularly those flowing through or nearby urban areas, though pollution prevention and treatment has been strengthened. Some of the lakes also suffer particularly from eutrophication. In recent years the lake itself has been experiencing rapid water quality deterioration.

Across Yunnan, wastewater treatment, a crucial component in reducing lake pollution, is practically nonexistent - there are only 38 wastewater treatment facilities in the province.

Compounding the problem of too few wastewater treatment plants is the lacklustre condition of existing facilities. In a spot check of 13 wastewater treatment facilities in Yunnan by the provincial environmental supervisory unit, it was discovered that six of the plants were incapable of "normal operations".

The project for Puzhehei is to protect the lake from further, and perhaps irreversible, degradation and to enhance access to basic environmental infrastructure. The project will first purify the wastewaters at the four intake rivers by building artificial wetlands, collect and treat wastewaters and solid wastes from nearby villages, and return some of the farming lands to wetlands.

Identifying key stakeholders

The study surveyed a total of precisely selected 500 households via a combination of one-to-one and group interviews. Systematic identification of key stakeholders is one of the key tasks the UK water companies will also need to address to inform how and with whom they engage on their AMP6 investment proposals. Ofwat has already said it will adopt a hands-off approach and will not be issuing prescriptive guidance on how the water companies should tackle the issue.

The questionnaires used to obtain stakeholder views in the survey included four parts. The first part was about the socio-economic characteristics of the respondents. These questions aimed to obtain information about household heads’ personal or household information, such as gender, age, education level, occupation, source of income, disposal income, expenditure, current and future income change, etc.

The second part concerned the attitudes and perceptions of the respondents towards environmental quality and the proposed changes.

The questions included in this part inquired respondents’ perceptions on the priority order for local government expenditures, their knowledge about important environmental issues, their willingness to donate money or labour for environmental protection, their projection of impacts of environmental degradation/improvement on future income, and their media exposure to environmental issues.

The third part of the questionnaires provided a description of the detailed project activities and their impacts with visual aids and addressed the existing level of knowledge of respondents on the projects, their awareness of any media coverage and their projection of the impacts of the project on their income and long-term welfare.

The last part of the questionnaires was about willingness to pay - respondents were told that without financial support from the household, it would impossible to implement the project and that a fund would have to be collected on a monthly basis continuously for five years. The funds collected would be solely and transparently used for the projects. With certain costs to the households, if there was majority support for the project, it would be implemented; if not, the proposed project would not go ahead.

Households would pay 3% of annual income for 5 years

The paper reports that a conservative estimation strategy shows that on average a household is willing to pay about 30 yuan per month continuously for 5 years for water quality improvement, equivalent roughly to 3 percent of household income.

While polluted surface water is encountered across most of China and previous studies suggest that most Chinese people are already aware of the seriousness of water pollution problems, to date few economic valuation studies have been conducted on water quality changes. The paper points out that limited information about the economic values associated with potential water quality improvements or deteriorations is a disadvantage for making proper choices in water pollution control and clean-up activities.

The paper says that the current lack of information of the economic values of cleaner waters in rivers and lakes and the damages to society by water pollution is a handicap for making informed judgments on clean-up investments.

"Massive and serious surface water clean-up efforts are urgently needed"

The study could make an important contribution to the current policy debates on investments in water pollution clean-up in China.

Polluted surface water is encountered across most of China as a by-product of its rapid economic development over the past three decades. However, to date few valuation studies have been conducted in China to estimate the economic damage of water quality deterioration or to measure the potential economic value of water quality improvement in the lakes and rivers. Many observers believe that massive and serious surface water clean-up efforts are urgently needed in China.

While water resources in China are overall abundant, they are scarce in per capita terms and in some regions. China’s renewable water resources on a per capita basis were estimated at 2,156 m3/year in 2007, only one-fourth of the world average of 85,49 m3/year. In northern parts of China, water availability is even worse at only 757 m3/year per person (World Bank, 2009).

Water scarcity is accompanied by water quality deterioration in China’s extensive water systems caused by pollution from industrial and domestic wastewater discharges, indiscriminate solid waste disposal and the runoff from agricultural sectors characterized by excessive use of fertilizer and pesticides and large-scale livestock breeding.

The paper says that about 25,000 square km of Chinese lakes fail to meet the water quality standards for aquatic life and about 90% of the sections of lakes around urban areas are seriously polluted. Serious water pollution has penetrated beyond surface water found in lakes, rivers and streams, and over half of the cities now have polluted groundwater.

The widening gap between water demands, limited supplies and deteriorating water quality means China is now faced with huge challenges for supplying safe and clean water to its large population as well as maintaining sustainable development.