Investment will be primarily used to ensure safe drinking supply

GUANGZHOU - China will continue to increase its investment in water conservation infrastructure to ensure grain security, protect water resources, promote the well-being of people and mitigate damage from disasters, a top water official said on Monday.

Addressing a national conference, Chen Lei, minister of water resources, said China invested a record high 345.2 billion yuan ($54.5 billion) in water conservation in 2011.

From 2006 to 2010, China spent about 140 billion yuan on average each year constructing water conservation infrastructure, according to figures from the Ministry of Water Resources.

Of the 345.2 billion yuan investment last year, which includes funding from sources on the local and provincial level, the central government accounted for 114 billion yuan.

About 46 billion yuan of the central government's expenditure came from a special fund for the water sector, up 71 percent year on year.

The investment from local authorities across the country also reached a record high of 231 billion yuan, Chen said.

The investment has been primarily used to supply safe drinking water to about 64 million rural residents, reinforce more than 400 key irrigation zones in the country's breadbasket, clean up 46,000 hazardous small reservoirs, harness some 1,000 local rivers and initiate early warning systems for torrential floods and subsequent landslides in 1,100 counties, he said.

Chen attributed the increased investment to a major policy issued early 2011 by the Communist Party of China, which pledged to invest 4 trillion yuan in water conservation infrastructure construction over the next decade, and China aims to increase its average annual spending to 400 billion yuan, or double the 2010 level.

According to the policy, local governments should set aside 10 percent of their revenue accrued from land sales for farming irrigation projects, which is the weakest link in the water sector.

Insiders estimated that up to 80 billion yuan from the land transaction fees could be brought together into farmland water conservation projects throughout the country to ease their chronic investment shortage.So far, about half of the country's provincial-level administrative regions have formulated their own policies about how they should use the 10 percent from land sales for farming irrigation infrastructure, and some are diverting more money into it than they are being asked for.

In Northeast China's Heilongjiang province, a key breadbasket for China, 10 percent to 15 percent of its profits from land sales will go to farming irrigation projects, with the maximum percentage going up to 20 percent in Shandong province in East China, according to the ministry.

Chen said the country will continue increasing its investment in water conservation projects this year, and new measures will be adopted to allow local governments to raise funds.

The People's Bank of China, the country's central bank, and seven other financial institutions will encourage local governments to widen their fund-raising channels by setting up water investment companies to develop water-control projects.

In the pending rules governing fundraising, water enterprises will be allowed to issue bonds and take other measures to increase investment in water conservation.

As a financial platform, governments in 24 provinces, autonomous regions and municipalities throughout the country have already set up water investment companies to attract non-government funds with the issuance of special bonds.