China’s Inter-regional Trade of Virtual Water: a Multi-regional Input-output Modeling

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Regional Research Institute


The success of China’s economic development has brought increasing pressures on its water resources, motivating it to better understand water use characteristics and how scarce water resources are transferred among regions. Virtual water is a term used to refer to the volume of freshwater consumed for producing traded goods and services. It reflects the actual human consumption of water resources and therefore is important for water resources management. The goal of this paper is to evaluate the current inter-regional virtual water trade (VWT) structure and to assess the implications of these trade patterns for water use and water conservation strategies in China. Based on the most recently available multi-regional input–output (MRIO) data, we have developed an extended inter-regional input–output (IRIO) model for eight economic regions in China to account for virtual water flows. The findings show that water use efficiency has increased over the years, but it is still unbalanced among the regions. The total amount of VWT has increased, and the major source of the trade is domestic inter-regional trade, especially intermediate products trade. Moreover, the main direction of virtual water transfer is from water-poor inland regions to water-rich regions, which is unfavorable for water resource allocation and efficiency. Therefore, in addition to enhancing water use efficiency and encouraging water-saving production alternatives, we suggest that China’s government should also adopt a market-based water pricing system.