Inter-Industry Transfer of Intermediate Virtual Water Scarcity Risk: The Case of China

Abstract

Multiple factors need to be considered when allocating water resources, among which water scarcity risk is often ignored. However, the unmet water demand of upstream sectors with high water dependency will exacerbate water scarcity, and lead to potential economic risk to the industrial chain. To solve it, we propose a method to quantify the intermediate virtual water scarcity risk transfer via the intermediate use matrix and Leontief inverse matrix, and apply it to virtual water trade in China in 2018. Meaningful conclusions are drawn as follows: (i) Although the water-use efficiency of all sectors in China increased steadily from 2007 to 2018, the overall input concentration of virtual water scarcity risk showed a rising trend, reflecting the gradual increase in the vulnerability of the industrial chain to water shortage. (ii) The virtual water scarcity risk in China mainly transferred through the secondary industry. The secondary industry accounted for 51.8% of the output and 71.8% of the input in the intermediate virtual water transfer, while 77.0% and 74.7%, respectively, in intermediate virtual water scarcity risk output and input. (iii) From 2007 to 2018, agriculture, chemical industry, metallurgy, electricity and heat supply always ranked as the top four of intermediate virtual water scarcity risk output sectors. As their downstream sectors, the construction industry, metallurgy, and other services are stable within the top four input sectors. (iv) The virtual water scarcity risk upstream transmitted is significantly dispersed after the intermediate inputs process, indicating that abundant import relationships are conducive to reduce the risk taken in. From the perspective of intermediate input, this paper argues that it is necessary to both ensure the water supply of the upstream source sectors and disperse the downstream import sources. Moreover, enriching industrial structures and closing production linkages between sectors is also beneficial for promoting sustainable economic development.