China Faces Huge Drought

The torrential rains that usually flood southern China's Yangtze River in spring have not come to fruition this year. Officials in Beijing have also reported that rainfall in Hubei, Jiangxi, Anhui, Jiangsu and Zhejiang are at their lowest levels in more than 50 years. In an effort to cool the pressures on agriculture, drinking water and electricity production in what has been historically China's most water-abundant region; officials have ordered the release of water from the Three Gorges Dam. According to the State Flood Control and Drought Relief Office, water flow from the dam will be increased by 10 to 20% over the next few days. While droughts are pretty common in China, one of this magnitude isn't. In Hubei, nearly 1,400 small lakes have become so dry that water authorities have declared them “dead” and banned any water pumping or drinking. So far, drought relief programs have focused on the heart of China's rice-growing region in Hunan and Hubei. Officials have brought in storage tanks, pumps and generators as a way to help the region. However, analysts believe the growing water scarcity concerns will prompt Beijing to raise water tariffs and duties. The recent drought in China highlights water's effect on the world's economy and people. Water scarcity will continue to be a paramount issue going forward. While there is no way to buy potable water futures just yet, it still remains a compelling portfolio addition. The PowerShares Global Water PIO, Guggenheim S&P Global Water Index CGW and First Trust ISE Water Index FIW all follow baskets of water related companies that will benefit from this trend. Investors may want to consider adding the sector to a long term portfolio.