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Environmental Protection in China's Wealthiest City:
Shanghai Water Quality

A July 2001 Report from U.S. Embassy Beijing

As one might expect from China's wealthiest city, Shanghai� Municipal Government agencies responsible for water supply and water quality issues are more capable and sophisticated than those in other regions of China we have visited. These Government agencies are well-funded and capable, and have clear plans. The business sector (both private and state-owned) is engaged in attacking environmental challenges, and technical and financial support from overseas has been used effectively. As the water supply and treatment infrastructure inside Shanghai� borders becomes more complete, the city may find that further improvements in water quality will depend upon assisting upstream neighbors. The same may also be true for air quality improvements.

Water Quality Issues the Top Concern

During a springtime visit to Shanghai, we found all parties to be most keenly focussed on Shanghai's biggest environmental challenge -- improving regional water quality in the face of rapid economic growth and growing demand -- although attention was also given to air pollution and solid waste concerns.

It is not difficult to see why water quality issues worry Shanghai's leadership. The Delaware-sized municipal territory includes some 3000 rivers, and roughly 8% of Shanghai land is covered by surface water. Even so, the city so far can draw on only 200 tons of new fresh water per person per year, a fraction of the global average availability of 1750 tons per person.

Shanghai has made great strides in controlling industrial water pollution, with the city claiming that effluent is treated at 100% of "larger" industrial operations, and 70-80% of "smaller" factories. At the same time, however, only about 28% of residential wastewater is treated, a situation which local leaders hope to remedy within the next five years by investing in some large-scale wastewater treatment plants. One 400,000-ton plant, for example, is being built using loans from the Asian Development Bank. Once completed in 2003, a second plant with 1.3 million tons/day capacity will be built using a proposed $200 million World Bank loan. The city has set the ambitious goal of recycling 80% of its wastewater by the year 2005.

As a result of its dense population and limited fresh water supply, Shanghai must draw much of its water for domestic and industrial use from fairly far upstream. Eighty percent of the city� supply comes from the upstream Huangpu River, where the river is polluted to Level III � requiring extensive treatment plus boiling before consumption. A major World Bank-funded project was central to the construction of this upstream water supply system. An additional intake is planned for the cleaner Yangtze River on the north side of the Municipality, although some experts are worried about the water there becoming too saline in the event that the Three Gorges Dam and South-North Water Transfer projects significantly reduce Yangtze River flow. (Historically, before the city built river intakes, much of the Municipality� water was pumped from wells. But after land in the city center sunk 1.7 meters from 1921 to 1965, the leadership recognized the importance of not drawing groundwater from beneath the city proper. The situation has since stabilized.)

At Fudan University, experts are now focused on developing the next generation of water treatment technology, aimed at removing low concentration pollutants, and achieving the ultimate dream of potable tap water. The experts doubt that within the next five years Shanghai will have enough of its "basic" water pollution problems solved to attempt the next step (currently the bulk of water supplies go through both "pre-treatment" and "bio-treatment," but the water still has to be boiled). Still, they are hopeful that more advanced technology of this sort will be in demand within a decade.

Looking toward the future, Shanghai may have to look farther inland for sufficient fresh water supplies. To exploit such resources, however, the Municipality will likely have to provide "development assistance" to other regions outside its borders. Of particular importance is nearby Taihu Lake, one of China� largest. The lake� water (despite clean-up expenditures of some $1.45 billion, according to one report) is rated Level V -�unfit even for use by industry, or by farmers for irrigation.

The Resurrection of Suzhou Creek

Although the mundane work of building treatment plants and laying miles of sewer pipes and water mains is probably the key to cleaning up Shanghai� water environment, Shanghai� highest-profile environmental clean-up effort is the ongoing project to bring Suzhou Creek � which flows through the city center � back to life. Until recently, unmentionable odors rising from the waterway provided just a hint of the true toxicity of this open industrial sewer. The city has pledged $1 billion, including a $300 million loan from the Asian Development Bank, to clean up the river and install sewer infrastructure in surrounding areas. About $169 million has been spent thus far, starting in 1998. Now, in the spring of 2001, the official media is reporting that some live fish have actually been spotted, the first seen since the 1980�.

The Shanghai Environmental Protection Bureau is currently debating a bold plan to dredge the creek� rather toxic sludge for disposal. The outlines of the debate are similar to the current controversy surrounding clean-up of the middle reaches of the Hudson River in New York: whether it is better to try to permanently remove toxic sludge, or better to let it sit and not risk increasing the circulation of toxic material. If the city decides to go ahead with dredging (which appears likely), it will likely seek foreign assistance, particularly technical help with waste treatment. (According to one report, the city is currently studying a proposal to build a dedicated facility specially equipped for hazardous waste disposal.) The city is also interested in exploring whether Suzhou Creek sludge can be recycled into fertilizer, or construction materials.

A secondary issue relevant to the clean-up of Suzhou Creek is the question of solid waste disposal. To date, the city has relied on barges navigating Suzhou Creek to transport municipal solid waste to landfills near the mouth of the Yangtze River. This has led to considerable spillage in the slow-flowing (20 kilometers per month) creek, as well as leeching of pollutants into the ocean from the unlined landfills. The alternative of trucking garbage through the city is expensive, and also brings increased traffic and related engine exhaust, so the city is aiming to increase its ability to compact and incinerate solid waste. According to leaders at the SETC, low interest (probably tied) loans from France and Spain have helped in the installation of solid waste incinerators that can handle 1000-1500 tons per day. The city hopes to increase capacity to 6000-10,000 tons per day within the next few years (currently Shanghai produces about 10,000 tons per day of solid waste, although that figure is increasing rapidly). The city is seeking a $100 million loan from the World Bank to support this plan. A separate problem is solid waste in agricultural areas, which is not collected for disposal (as is the case in much of China).

Air and Noise Pollution

Turning to air quality issues, Shanghai's air would be considered heavily polluted by U.S. standards, but it is only "moderately" polluted from the Chinese point of view -- Los Angeles air quality could be considered a rough equivalent. Power plants are still the No. 1 source of air pollution in the city, but automobiles are catching up quickly. In order to address this threat, the city government is providing incentives to invest in LPG buses and taxis. Shanghai is also seeking to accelerate the retirement of older vehicles. Another measure is to clamp down on the Municipality's 600,000 motorbikes, although enforcement is proving difficult. Several interlocutors expressed great interest in the potential for electric automobiles or motorbikes.

Instead of investing in coal washing or flue gas desulfurization to meet national emissions standards, power plants in Shanghai have purchased expensive low-sulfur coal, which they can afford and the expense of which can be passed on to the consumer. According to local experts, buying low sulfur coal is still more economical than investing in advanced air pollution control technologies that could handle higher sulfur coal, especially when the equipment (such as desulfurization technology) has to be retro-fitted. Looking forward, the city is aiming to install mostly natural gas-burning power plants, to take advantage of the increased natural gas supplies set to arrive via the planned West-East Gas Pipeline from western China.

Interestingly, the most common complaints to the Environmental Protection Bureau concern noise pollution. Heavy traffic on narrow streets, plus ubiquitous and round-the-clock construction activity, apparently make Shanghai a rather noisy place to live.

Local Capabilities

Shanghai is unusually capable in the field of environmental protection. Including district inspectors and enforcement personnel, more than 2000 people are employed by the Shanghai Municipal Government to protect the city's environment. This is roughly an order of magnitude higher than one would find employed doing similar work in much larger and more populous provinces in inland China.

According to the Shanghai EPB, about 3% of local GDP is spent on environmental protection -- either directly by the government or by industry reacting to government standards and requirements. As is true in several cities on China� eastern seaboard, some local environmental standards -- notably those governing water quality -- are in fact tougher than national standards. The Shanghai Municipal Health Bureau, for example, is exploring the idea of upgrading mandatory water quality standards to match WHO and EU levels (although this idea has encountered some opposition from interests that find that hurdle too high to jump in the short term).

In constrast to Beijing and some other cities with relatively educated populations, Shanghai appears to have few environmental volunteer groups. At the same time, however, the city government is quite active in pushing environmental education campaigns through the city school system, as well as propaganda outlets.

Specific to water, in May 2000 Shanghai took the useful step of unifying disparate water supply, distribution, and sewer organizations into a single Shanghai Water Authority (SWA), responsible for coordinating pricing and policies. This latest step is solidifying an emerging policy of making sure the consumer pays for the real cost of water supply and treatment. As one SWA officer told ESTCOUNS, "until the early 1990�, all costs were carried by the government, but now we�e trying to be more market-oriented."

Despite these intentions, however, water prices in the city (at $0.20 per ton for households and $0.25 per ton for industry) are still well below actual cost. This (perhaps temporary) miracle is achieved in two ways: first, by diverting profits from the SWA Capital Assets Holding Company, a successful real estate and equity investment firm; and second, by not requiring the SWA to buy previously-built sunk-cost infrastructure from the city, and not requiring it to pay off the Municipality� loan burden for past water projects. Given this situation, considerably higher water prices for Shanghai seem likely in the not-too-distant future. The household-level water meters currently being installed will increase the conservation impact of these price rises once they arrive. Water demand, which for many years grew at the same pace as GDP, has grown more slowly in recent years.


There seem to be numerous short and long-term possibilities for U.S. firms to assist in Shanghai's ongoing investments in environmental clean-up and pollution control, notably: wastewater treatment technology, flue gas desulfurization technology, solid waste incineration, landfill design, clean vehicles, and pollution measurement instrumentation. In addition, the Suzhou Creek dredging and toxic cleanup represents an important commercial opportunity.