Impacts of Water Pollution and Shortage on the Economic Development of the Haihe River Basin

The Haihe River basin is one of the seven major river basins, which are of great ecological importance to China. On one hand, the Haihe River basin’s economy is developing rapidly, but on the other hand, the ecological environment in this region is increasingly worse, and its ecosystem is becoming extremely fragile, which is not harmonious with its rapid economic development. Coming from the general equilibrium theory of Walrus, the CGE model (Computable General Equilibrium) can be applied to analyse the impact of government policy on economic development. Environmental policies taken to reduce pollutant disposal and water consumption directly influence product price, production cost, and even economic structure. In this paper, by building a CGE model, we will analyse the impact of water pollution and water shortage on economic development in the basin region. By viewing water resource as one of the production factors and water pollution treatment as an independent entity, we will also analyse the relationship between input and output of water resource, and between water pollution control and other economic activities. The analysis comes to the following points. First, through water pollution control the traditional GOP decreases, but the green GOP increases. Second, compared to water shortage, the water pollution crisis is more urgent. Through the water diversion project from the south to the north of China and technique index promotion, water shortage is alleviated, but water pollution needs further effort.