Defining Cities by Water: AddressingCapital Misallocation in a Race toConserve Resources

Yao Peng1, Li Jinze2*

1 School of Economics, Qufu Normal University, Qufu, China; School of Economics, Shandong University, Jinan, China

2 School of Economics, Ocean University of China, Qingdao, China

Abstract: As part of its efforts to promote a sustainable and high-quality development,China has pledged to reduce water consumption and create a water-efficient society. Onthe basis of identifying the institutional root causes of excessive capital allocation andexcessive water consumption in China’s water-intensive industrial sectors, this studyelaborates how the national water-efficient cities assessment contributes to optimizedcapital allocation. Our research shows that national water-efficient cities assessment hasmotivated local governments to compete for water efficiency. To conserve water, localgovernments regulated the entry and exit of water-intensive enterprises, discouragedexcessive investments in water-intensive sectors, and phased out obsolete water-intensivecapacities within their jurisdictions. This approach has resulted in mutually beneficialoutcomes, including improved allocation of capital, enhanced water efficiency, and reducedemissions. This paper offers policy recommendations for establishing a water-efficientsociety throughout the 14th Five-Year Plan (2021-2025) period by presenting empiricalevidence on the policy effects of resource efficiency evaluation.

Keywords: Competitive evaluation for resource efficiency, national water-efficient cities

JEL Classification Code: D24, R50, Q58

DOI: 10.19602/j.chinaeconomist.2024.01.06