As climate hazards intensify, adaptation will increasingly influence which economies thrive and which struggle

Human societies around the world have long found ingenious ways to cope with extreme weather. China is no exception. Its long history of flood control, water management and climate-sensitive agriculture reflects a historical understanding that resilience is a prerequisite for growth. For example, the ancient Dujiangyan irrigation system in Sichuan province, which harnesses natural topography to manage floods and irrigate farmland, continues to support millions of people today.

New McKinsey Global Institute research — Advancing adaptation: Mapping costs from cooling to coastal defenses — finds that the world spends about $190 billion a year on adaptation through 20 key cost-effective and proved measures, ranging from sea dikes to air conditioning. That investment protects roughly 1.2 billion people to standards typically established in developed economies.

Globally, though, that leaves 3 billion people with insufficient protection from climate hazards. Extending developed-economy standards of protection worldwide would require $540 billion annually today, leaving a global gap of roughly $350 billion.

Climate change is widening that gap. Under current emissions trajectories, global warming is likely to reach around 2 C above preindustrial levels by midcentury, increasing the number of places and people exposed to heat, drought, wildfire weather and flooding. Protecting everyone around the world exposed to 2 C of warming by 2050 pushes the price tag of adaptation to $1.2 trillion a year. China, with its large landmass, diverse climate and substantial economic scale, is no exception.

At 2 C of warming, China's annual adaptation costs could rise to over $250 billion annually, about one-fifth of the global total and the highest of any given region in the world. Nearly 70 percent of that spending would be needed to address heat stress and drought, with measures such as active and passive cooling, irrigation and crop shade cover.

However, adaptation is not just a necessary expense; it's a smart investment. On average, adaptation investments deliver returns in the form of avoided damages that are roughly seven times their cost at 2 C of warming. Cooling enables work to continue during heat waves and raises labor productivity. Irrigation stabilizes agricultural output in hotter, drier conditions. Flood defenses safeguard infrastructure, housing and industrial assets that underpin economic activity. For China, where dense urban clusters, manufacturing hubs and agricultural regions are in many cases located in climate-exposed areas, the payoff would be especially large.

The opportunity to scale up adaptation efforts is immense. While the current spending might fall short of what's needed, economic growth can play a crucial role in bridging this gap. However, growth alone won't be sufficient. Even if adaptation spending increases in line with economic growth, which is not a certainty, our research indicates that the required investment at 2 C of warming is not enough. This highlights the need for strategic planning and prioritization to fully capitalize on the substantial returns that adaptation can offer.

The good news is that China is not starting from scratch. It released a detailed national adaptation plan in 2022 — the National Climate Change Adaptation Strategy 2035 — that set out a nationwide approach to strengthening climate resilience — embedding adaptation into planning and design, improving standards and technical specifications, and enhancing climate monitoring, forecasting and early-warning capabilities. This direction has also been reinforced through large, place-based urban resilience initiatives, including "sponge city" and "climate-adaptable city" pilots, designed to address excess-rainfall flooding while testing and scaling approaches to resilient urban development.

With intensifying hazards and growing exposure, these efforts can be complemented by broader action across households, companies and the public sector. Households and enterprises already play an important role, where they can afford to. They can continue to invest in heat protection through passive cooling measures such as reflective roofs, alongside active cooling options such as fans and air conditioning that offer additional protection. Businesses, especially large ones, can also manage their exposures across their operations and supply chains, and invest in cost-reducing innovations such as efficient cooling technologies and climate-resilient materials.

Policymakers, too, have a vital role to play. Large-scale infrastructure such as coastal defenses, urban drainage systems, water management networks and resilient power grids cannot be delivered without public leadership. Crucially, China has the opportunity to embed adaptation early as it continues to invest in urbanization, transportation, energy systems and industrial upgrading. Integrating resilience at the design stage is far cheaper than retrofitting after disasters strike. Policymakers can also shape adaptation by setting and enforcing building codes and land-use standards that reduce exposure to climate hazards. Financial institutions can support this shift by embedding resilience considerations into project finance.

China has the tools, capital and institutional capacity to make climate adaptation work. Doing so is not just about managing risk. It is also about safeguarding productivity, protecting vulnerable communities and industrial assets, and sustaining long-term growth. Investing in resilience today may prove to be an important growth strategy for the coming decades.

Mekala Krishnan is a partner at the McKinsey Global Institute, McKinsey's business and economics research arm. Kanmani Chockalingam and Annabel Farr are senior fellows at the McKinsey Global Institute. The authors contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.