How the global water crisis can help the US-China détente

The Biden administration’s season of engagement with China has at last led to tangible progress. A series of China visits by high-ranking administration officials led to the announcement of a new structure for U.S.-China economic dialogue, under which newly created U.S.-China working groups will meet to discuss policy and exchange information.

This is an important development — it represents a concrete step forward in the administration’s China strategy of “invest, align, compete” and a strong counter to the factions in both the U.S. and China that seek outright confrontation. But working groups and information exchange only go so far. What will it take to transform the promise of the new framework into genuine, concrete progress on the ground?

To produce concrete results, attack the global water crisis.

The way to accomplish this is to identify a collaborative project — one that produces tangible outcomes, attacks an urgent problem and represents a win for the U.S., China and the world.

The global water crisis presents exactly this opportunity. Here is why:

• The water crisis is a genuine emergency, with implications for the global economy and geopolitical stability. According to newly released data from the World Resources Institute, 25 countries, housing 25 percent of the world’s population, face “extremely high” water stress. A recent World Bank study estimates that severe drought can reduce economic growth by 0.85 percentage points. The Pentagon’s 2021 Climate Risk Analysis describes the security impact of drought, crop failures and water shortages that drive mass migration, destabilize regions and lead to state failure.

• The water crisis severely impacts both the U.S. and China. In the U.S., water emergencies seem to unfold daily under the pressure of accelerating climate change. The latest is in New Orleans, where the Army Corps of Engineers is preparing to barge in as much as 36 million gallons of bottled water as the city’s drinking water supply is threatened by saltwater intrusion. A recent New York Times investigation spotlights the depletion of groundwater reserves across the U.S. threatening “the long-term survival of [U.S.] communities.” China’s water crisis goes back decades as a result of heavy industrialization and a lack of environmental standards. Today, 80 percent to 90 percent of China’s water is unfit for human consumption and water for agriculture is scarce. China must now maintain a strategic grain reserve, similar to the U.S. strategic petroleum reserve.

• Solving the water crisis requires technology that the U.S. and China can safely share. The idea of the U.S. and China sharing every technology is understandably impossible, but water technology is an exception. New cost-effective solutions for desalinization, point-of-consumption filtration systems that efficiently make water drinkable only as needed, point-of-use recycling systems such as closed-loop water recycling for manufacturing and systems to condense water from HVAC systems or gather it from storm runoff are worth a joint research effort.

The challenge with these technologies is that many of them are in the early stages of research and development, and that makes them extremely expensive, effectively beyond the reach of nations in sub-Saharan Africa and South Asia that need them the most.

That — and the need to move quickly — means that the right vehicle for a U.S.-China water collaboration is not a government-to-government project but rather a public-private water technology investment fund, managed and run by a team of investment professionals in collaboration with the U.S., China, other water-technology-savvy nations such as Saudi Arabia, Israel, Singapore and South Africa, and multilateral institutions such as the World Bank, the Asian Infrastructure Investment Bank and others.

There are several reasons why an investment fund makes sense:

• It can be quickly capitalized to the required level — an initial target of $1 billion — while steering clear of political polarization and other funding constraints.

• It can operate flexibly, identifying and investing in the most promising projects without the delays or constraints of a government grant system.

• It can be much more effective at choosing technologies and rapidly moving them to cost efficiency. The challenge with early-stage technologies is to select the most promising ones and then develop and scale them to the point where they are commercially viable. The fund should be capitalized by governments, philanthropic organizations and sovereign funds. The aim would be not to make grants but to earn an acceptable return of capital by supporting technologies that can be commercialized and adopted globally, especially in countries and regions that face severe water shortages. The fund would be managed by a professional team that could be located in countries with expertise in water technology such as Israel or Singapore, while leveraging U.S. capital know-how.

Models for such a fund exist – the Millennium Challenge Corporation is one example; another is the recently announced NATO $1.2 billion venture capital fund designed to boost the alliance’s technology edge, which the U.S. declined to join.

Of course, the details of the fund’s structure, management and focus would have to be matters for negotiation. But the promise of the fund should be clear — both for U.S.-China relations and for all the nations and regions that struggle with the massive impact of the water crisis. 

Those officials in the U.S. and China who genuinely seek cooperation within the framework of “invest, align, compete” would do well to remember the words of Laozi. “Nothing in the world is as soft and yielding as water,” he wrote in the Tao Te Ching. “Yet for dissolving the hard and inflexible, nothing can surpass it.”

Sadek Wahba is chair of the Wahba Institute for Strategic Competition at the Wilson Center. He is the author of the forthcoming book “Build: Investing in America’s Infrastructure” published by Georgetown University Press. He is a member of President Biden’s National Infrastructure Advisory Council and Chairman of I Squared Capital. The views expressed in this article do not necessarily represent those of NIAC or I Squared Capital.