Will China run out of water by 2030?

China's ambitions are high. By 2020, it aims to double its 2010 GDP and per capita income of urban and rural residents both. China's economic track record has been impressive. It now has a middle class population of more than 300 million and has experienced the fastest ever economic growth over the past 30 years. But it may not be able to maintain this momentum unless it overcomes one of its core policy challenges: water, both in terms of quantity and quality.

Economic growth is no rocket science. Abundant supply of cheap labor and energy powers a country's industrialization. Without affordable energy, however, energy-intensive businesses are driven out of the market and many factories are unable to produce goods at competitive prices. This link between economic growth and energy - the energy-growth-nexus - is widely acknowledged. But most analysts and policymakers today ignore what really an energy industry is powered by: abundant and sustainable supply of water.

Indeed, China's economy runs on water. Water is needed at one stage or another to generate energy. China's industry is the second largest water consumer - it consumes 139 billion cubic meters of water a year - with only the agriculture sector consuming more. And by 2030, Chinese industry's water consumption is projected to increase to 265 million cubic meters.