Financial and labor constraints may be the current focus of concern, but a far greater threat to China's long-term economic growth lies in its lack of attention to ecosystems. China's surface water is rapidly depleting, and Charles Wolf of the Rand Corporation estimates such water shortages could indefinitely lower annual growth by as much as 2%.

China could solve this problem by adopting a system of environmental property rights. Having successfully incorporated market forces into other areas of its booming economy, it's time to extend the same approach to the environment. China's leadership needs to understand that market mechanisms can protect the environment every bit as effectively as they boost the production of CDs and cars.

That's a task made more difficult by the human-rights and green groups who undermine their own credibility by opposing dam development as a matter of principle. From the Three Gorges in China to the Narmada Dam in India, these groups ignore the benefits such projects can bring, such as generating electricity, reducing the risk of flooding and providing better irrigation for food production. Their exaggerated approach obscures the valid concerns about the dangers of ecological catastrophe, and the rights abuses caused by the often forcible removal of tens of thousands of inhabitants.

China's development patterns resemble those in the U.S. and Britain in the early 20th century, when pollution was viewed as the inevitable price of growth. That's a common attitude in China today. For example, one Chinese businessman told me that pollution is a "price worth paying"--an opinion shared by many local officials. So why is China now facing a far greater ecological danger than those Western countries experienced when they went through similar phases of rapid development earlier this century? The reason is that in the U.K. and the U.S., individuals had ownership rights over their local environment, even if they weren't always enforced. Ordinary Chinese, on the other hand, have never had those rights.

In building the Three Gorges, China has embarked on the largest dam development program the world has ever seen. Yet although 70% of China's water supply is used for agricultural purposes, China's food production is not benefiting as much as it should. The efficiency level for crop production (the amount of water absorbed by plants and not lost to evaporation) is less than 50%, compared with 65% in the U.S. Part of the reason is that many of China's irrigation schemes were hastily designed, poorly constructed and built with inferior materials. Another reason is that China's massive size and population exacerbate the degree of damage done by any policy failure.

Efficient water use is also closely linked to a system of property rights. English common law, for example, gives all landowners the right to demand that water flowing past their land remains in decent, natural condition. By the 1960s, lawsuits brought by individuals against polluters in the U.K. had led to the cleaning up of many rivers, long before government agencies added a layer of bureaucracy to such efforts.

In the U.S., river water is effectively owned by local landowners and fishermen in places like Montana and Utah. Although excessive federal government regulations often makes it difficult to trade, or even exercise, such rights, their very existence can empower individuals and act as a constraint on still greater government interference. And in many other countries, from Chile, to South Africa, Mexico, India and especially Australia, allowing individuals to own water rights has benefited the poor and helped to improve the environment.

In the absence of such free-market solutions, China's rapid development has brought it to the brink of ecological disaster. Pan Yue, vice minister of the environment, addressed the problem at a recent news conference: "China's population resources and environment have reached the limits of their capacity to cope. If we continue on this path of traditional industrial civilization, there is no chance that we will have sustainable development."

This problem cannot be solved until China allows local people, especially farmers, to own their water and trade usage rights. Allowing them to do so would ensure more efficient farm production, and lead to less water waste. Over the long-term, ownership rights can empower people and lead to political pressure for change.

As Russia is discovering, it's not possible to throw off the shackles of communism and then confine yourself to the bits of capitalism that appeal to the current oligarchs. Success will require the discipline of the market as much as the opportunity and growth it brings, and growth without responsibility is not sustainable.

Roger Bate is a visiting fellow at AEI.