But given that 600 billion cubic metres was used on the mainland in 2009, it will be a challenge to enforce these “red lines”, said Amy Leung, the Asian Development Bank’s (ADB) director of urban and social sectors for East Asia.

Patricia Adams, executive director of Probe International, an international environmental advocacy group, said setting such targets was wrong and would not solve the nation’s water crisis.

“The Chinese government is right to recognise the seriousness of the country’s water crisis, but wrong to try to solve it with rigid caps on consumption and mandated investments in infrastructure,” she said.

“Water is being polluted and consumed across the country without liability and accountability. The policies in the No1 document will not remedy that.”

Beijing issued the No1 document late last month, its first comprehensive policy statement on water since the founding of the People’s Republic of China in 1949.

Under the plan, the central government will spend four trillion yuan (HK$4.73 trillion) over the next 10 years on water conservation projects aimed at more efficient water use on the mainland.

More than two-thirds of the mainland’s 660 cities suffer water shortages, which have cost the economy the equivalent of a 2 per cent loss in gross domestic product, according to the ADB.

That loss stems from restricted industrial and agricultural output as well as limits on other business activities because of an inadequate supply of water.

And 43 per cent of water in the seven key river basins on the mainland does not meet drinking water standards, the ADB says.

The country’s policy document on water highlights the need for a conservation plan that covers the whole economy in terms of its stability and security, rather than focusing on flood and drought prevention, Leung said.

“The Chinese government has moved from the traditional engineering approach to a more holistic and resources-oriented one in managing its water resources. ADB supports the Chinese government’s emphasis on water conservation reform and development,” she said.

The ADB is working with the Ministry of Housing and Urban-Rural Development on two policy studies: wastewater and solid waste management in small cities and towns; and re-use of urban wastewater. This year it will also work with the ministry on a policy study of urban stormwater management and disaster prevention. The studies support water resource management, flood and drought prevention under the plan.

The ADB has also supported three technical assistance projects: the Guiyang Integrated Water Resources Management Project; a strategy for drought management; and a flood risk management strategy.

Leung said the ADB would increase its lending from this year to 2013 to support the State Council’s focus on managing water resources, but she did not give figures.

She said local funding was needed to support Beijing’s four-trillion-yuan investment to tackle the country’s water problems in the next decade.

Under the water plan, local governments are required to set aside 10 per cent of their revenue from land sales to support water conservation.

Probe International’s Adams criticised both the caps on consumption and proposed funding arrangements in the new water document.

She said consumption caps created an incentive to cheat, and state directives to build infrastructure would not deliver safe drinking water because of the lack of legal obligations, economic incentives and transparency on the mainland.

“The proposal to finance the operation with 10 per cent of revenue from land sales is so unrelated to real investment needs that it will inevitably be used inefficiently and corruptly,” she said.

The central government should instead encourage companies to invest in water infrastructure, she said.

Rather than rigid caps on consumption, it should introduce pricing to reflect the scarcity of water, she said. It should also create legal obligations and economic incentives through a system of fines and rewards to provide safe drinking water, Adams said. “To protect water quality, the government should write laws that prohibit pollution of surface and groundwater, and they should enforce those laws in a transparent way in which all parties have recourse to the courts,” she said.

“While the intent of the No1 document may be right, the methods are too blunt. Instead of instituting top-down Maoist diktats, the Chinese government should use laws, incentives, and rights that reward conservers and punish profligate users of China’s scarce water resources.”

Peter Bosshard, policy director for International Rivers, a water-related environmental advocacy group, said recommendations in the water plan did not go far enough.

“Climate change will deepen China’s water crisis to an extent that further fundamental changes will be needed,” Bosshard said.

“China will not be able to bring sufficient water to where demand is, but will instead have to shift demand to where water is available,” he said.