REGULATIONS > Water Policy

China’s 12th Five-Year Plan

Quality Growth

The ‘quality growth’ emphasized in China’s 12th Five Year Plan (FYP) adopted on March 14th has met with plaudits from green groups. It promises to shift China’s focus on unbridled economic expansion, which has delivered annual GDP growth rates of 10 per cent on average for the last three decades, to a model which delivers green growth and social stability and slows the GDP growth rate down to a target 7 per cent.

With ‘scientific development’ at its core, the 12th FYP calls for a total transformation of China’s economic structure which incorporates new limits on energy consumption and targets for reducing pollution. This is complicated. Multiple provincial, sectoral and special plans require careful and co-ordinated implementation. Yet, as is usual in these FYPs, there was little detail regarding this implementation.

Energy targets



11th FYP Proposed (end 2005-end 2010) 11th Achieved (end 2005-end 2010) 12th FYP Proposed (end 2010-end 2015)
Energy intensity reduction 20 % 19.1% 16%
Carbon intensity reduction n/a 16.2 % 17%
Sulphur dioxide emissions reduction 10% 14.29% 8%
Chemical Oxygen Demand (COD) reduction 10% 12.45% 8%
Ammonium nitrate reduction (new) n/a n/a 10%
Nitrogen oxide reduction (new) n/a n/a 10%
Five heavy metals reduction – lead, mercury, chromium, cadmium and arsenic (new) n/a n/a 15% from 2007
Water intensity (water consumed per unit of value-added industrial output) reduction 30% 37% 30%
Non-fossil fuels proportion of primary energy mix (15% renewable energy by 2020) 8.3% 11.4%


These energy targets said to be set by consultation and pollution targets based on research evidence and the delivery of targets forms the backbone of the Chinese leadership’s legitimacy and careers depend on achieving them. Although just how binding they are is unclear since the Chinese language in the FYP is said to be ambiguous on this.

Target Setting

The target setting for the 12th FYP is said to have had more bottom-up input than before.  This process also aims to remove the potential for forecasts having to be revised. The 12th FYP’s overall energy efficiency target was established after a three stage back and forth process between the 31 provincial governments and central government. Although 16 per cent is an overall goal, it is has been adjusted by province depending on stage of development. Far Western provinces still in an early stage of development have the lowest target of 10 per cent whilst eastern and central provinces who have already benefited from rapid growth which they must now reign in have 16 per cent or higher. Water intensity targets are said to have been made directly with provinces in a back and forth process.

However, the sincerity of the bottom-up process has been questioned because some provinces were reported as submitting conservative targets which were then talked up. For instance, Ningxia submitted a 2.1 per cent target but ended up at 15 per cent. Was Ningxia playing a game of cat and mouse to secure an achievable target or is 16 per cent problematic?

There has been much debate over the do-ability of the energy efficiency target. Both Greenpeace and WWF have argued that 16 per cent is too low given China has easily achieved 18 per cent in the last five years and has momentum. Yet the Chinese Academy of Social Science’s Pan Jihua fears an overambitious target will create issues for implementation at the local level again. His concern is that the government has already exhausted the low hanging fruit, closing antiquated plants and consolidating small plants in the power and heavy industry sectors. Consequently, increased energy efficiency in future will rely on economic restructuring and innovation which take time.

Implications for Water

The energy intensity and carbon emission reduction targets have significant implications for water use. Circle of Blue has calculated that if carbon emissions are cut by 17 per cent and energy consumption by 16 per cent per unit of GDP then that means that for each new dollar of economic growth, water use must decline by nearly a fifth.

The reduction of water intensity remains the same as the last one at 30 per cent. It was planned to be 25 per cent, however this was moved up after the last FYP’s target was easily surpassed at 37 per cent holding growth in water use at about 1 per cent annually. But the plan also envisions record levels of water use, rising to 620 billion cubic meters by 2015—up from 599 billion cubic meters in 2010.

New pollution targets were in the plan as expected and established in response to data collected in the first national pollution survey released in 2010. The 10 per cent ammonium nitrate (a fertilizer) and Chemical Oxygen Demand (COD, a measure of water pollution) reductions were set in response to the finding that over 40 per cent of China’s COD, and over 55% of nitrogen discharges  comes from agricultural sources. However, the impact these targets may have on food production and security is unclear.

The 15 per cent reduction in heavy metals – lead, mercury, chromium, cadmium and arsenic by 2015 from 2007 levels was in response to data showing that China discharged 900 tones of the five metals in 2007.

The 10 per cent target for nitrogen oxides is meant to help control the use of coal and therefore water since coal production is the largest industrial consumer of fresh water, although there is some debate as to whether this is high enough to do so.

Investment in water management and infrastructure spending. The water crisis is clearly recognized in the plan which urges that the construction of water conservation structures is enhanced, irrigation is improved and rivers/lakes are cleaned up and properly treated. It also proposes accelerating the construction of wastewater treatment and recycling pipes.

Water management systems. Encouragingly, concrete financial measures appear to be being released already. A document published by the Ministry of Finance and Ministry of Water Resources just after the 12th FYP approval suggests a water fee collection structure at the central and local level to ‘implement the most stringent water management system’.

Magic Seven Strategic Emerging Industries (SEI)

Just as with bottom-up target setting, the inclusion of market mechanisms is part of the gradual devolution away from central control. The carrot and stick approach proposed in the plan will reform resource pricing and payment for environmental services.

The competitive advantage that exists from addressing climate change is not lost on the Chinese government. The Strategic Emerging Industries (SEIs) listed in the table below are identified as core to the new growth plan are expected to account for 8% of China’s GDP in 2015 and 15% by 2020.

Old pillar industries (Pew Centre for Climate Change) Magic Seven Strategic Emerging Industries – the new components of China’s industrial strategy (12th Five Year Plan)
National defense Energy saving and environment protection
Telecom Next generation IT
Electricity Biotechnology
Oil High-end manufacturing
Coal New energy
Airlines New materials
Marine shipping Clean-energy vehicles


A Climate Group/HSBC report on the 12th FYP has found four common approaches to fiscal and financial support for SEI plans in different regions: specified funds, preferential tax rates, financial system reform to favour industries, funding pilot demonstration programmes such as emissions trading and low carbon zone pilots.

But there are structural concerns, such as how to launch emissions trading platforms without a mandatory total cap on carbon and how to improve a weak track record on enforcement – examples include the lack of enforcement of the Renewable Energy Law’s stipulation that the State Grid must purchase energy generated from renewables.

The Climate Group/HSBC report identifies ‘limited continuous oversight, lack of energy data and minimal real-time punitive measures for violation of guidelines and regulations’ as key challenges, but concedes that these issues ‘continue to improve’.

To address this, the FYP commits to establishing well-equipped monitoring systems for greenhouse gas emissions and energy conservation so that the new policies can be tracked and market mechanisms implemented.

So the enormous ambition of the 12th FYP, without a detailed roadmap of how to get there, prompts nagging questions as to ‘how’, particularly in the face of rising consumption and inflation. Nonetheless, few doubt that China will do it. At a recent debate in Hong Kong Shui Sin-por, Hong Kong Central Policy Unit Advisor, provocatively called it ‘Mission Impossible’…the mission which always succeeds but needs a Tom Cruise to get it done.

We also recommend you read HSBC Global Research’s China’s Rising Climate Risk, issued on 6 October 2011.