More than two-fifths of cities, and tens of millions of rural dwellers pump used water directly into rivers, which risks damaging the heath of downstream users and the ecosystems of lakes where the water ends up.
Beijing plans to spend more than 330 billion yuan (US$41.5 billion) by 2010 to provide sewage treatment plants to all cities. If it invests in next-generation plants that effectively reprocess water, it could tackle waste and water scarcity while boosting its own economy.
"China, if it is going to remedy pollution, has to put in wastewater treatment. But that process constitutes an opportunity, because it can leapfrog to the latest technology," Paul Reiter, Executive Director of the International Water Association, told Reuters at a conference his group organised.
The bottom line is the old economic favourite of "scarcity".
China has around one fifth of the world's population but only seven percent of its water supply.
The country is investing billions in a project to transfer water from the river systems of the south to the arid north, but the scarcity of its resources means that ultimately China will have to focus on more efficient management.
For one of the original academic papers on the Porter Hypothesis see:
M. Porter and C. van der Linde, (1995), "Toward a new conception of the environment-competitiveness relationship", Journal of Economic Perspectives 9(4), Vol. 97 pp. 118.