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Eric Reguly

China wants to drink our milkshake Add to ...

China's semiconductor industry shares a troubling feature with China's steel industry: Both use outrageous amounts of water in a country where water resources are getting scarce. Once you understand that China has to phase out its thirstiest industries or risk starving itself, you might see how water-rich Canada could emerge as one of the world's great manufacturing countries, a role it's given up in recent decades in favour of digging up oil and minerals.

China has a big semiconductor industry. That's good news for Beijing-it shows that Chinese manufacturers are moving up the value chain. The bad news is that making a standard circular wafer with a diameter of 300 millimetres requires almost 10,000 litres of water, according to a study by UBS Investment Research. Much of that water also has to be ultra-pure. A typical semiconductor fabrication plant consumes as much water as a town of 40,000 to 50,000 inhabitants.

Now take steel. China accounts for about 40% of global output. You also have to consider that Chinese plants consume four to nine times as much water per tonne of steel made as American or Japanese plants.

Anyone who watches China closely cites water scarcity as the biggest threat to the country's growth. In a recent presentation to clients, Michael Komesaroff of Urandaline Investments, an Australian consulting firm that specializes in capital-intensive industries, especially Chinese ones, called water "the one issue with the potential to stop China's growth and rewrite the China Story." Note the word "stop," not "slow."

Komesaroff says that China has 20% of the world's population, but just 7% of its freshwater resources. The country uses four times more water per dollar of gross domestic product than its Group of 20 peers. Many of China's lakes and rivers are polluted, and water tables are plummeting in several key areas. The city of Beijing's water pumps now extend a full kilometre below the surface. In Hebei province on the North China Plain, which accounts for half of China's grain production, the water table declined by an average of three metres in 2010.

China's economic fortunes over the centuries have been tied to moisture as much as palace coups. In 2008, the journal Science noted that the waning of the Tang, Yuan and Ming dynasties all coincided with weak monsoon periods.

Chinese officials more or less acknowledge the severity of the current crisis. In an interview in the China Daily newspaper in April, Chen Lei, minister of water resources, said his country's annual water shortage amounts to 40 billion cubic metres. That's about the same as the total amount withdrawn each year from Canada's lakes, rivers and groundwater resources for all uses, from power generation to agriculture.

China is trying to make its industries more water efficient and is building some of the world's biggest plumbing schemes, such as the South-North Water Transfer Project. It will divert water from the Yangtze basin in the south to increasingly arid lands in the north. The project will likely cost more than $60 billion (U.S.) and will take decades, yet it may cause as many environmental problems as it fixes.

The UBS study implies that water-intensive industries will have to migrate from water-scarce to water-rich regions of the planet. The migration could be huge because key regions of India, South Korea, Taiwan, Australia, the Middle East, South Africa and-believe it or not-Brazil are also short of water. Which brings us to Canada.

Canada, according to our federal Environment Ministry, has the second-largest amount of renewable water resources (after Russia) among the G8 countries plus Australia and Sweden. Suncor, the oil sands giant, is one of the world's most water-intensive companies, as measured by direct water withdrawal per $1 million in revenue. Teck Resources is another hog. But water scarcity isn't an existential risk for companies here, although many are trying to reduce their water footprints. If the geological gods had plunked the oil sands in the western United States instead of Western Canada, they probably wouldn't have been developed.

Industrial water refugees may not arrive soon, but the shift will happen if global water use continues to rise at twice the rate of population growth, as it has for the last century, according to United Nations estimates. Sunset industries such as steel and chemicals could revive in Canada, as could food processing and beverages. It takes up to four litres of water to make one litre of bottled water, largely because of the plastic container. Canada could even emerge as a semiconductor manufacturer.

There is a caveat, however. Every few years, some Canadian entrepreneur hatches an idea to export bulk water to the United States or elsewhere by pipeline or tanker ship. Each effort has failed. But with bulk-water export legislation open to interpretation, and the United States getting thirstier, the next attempt could succeed. That would be economic stupidity. Best to make the jobs come to the water instead.

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Follow on Twitter: @ereguly

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