By Nils Blythe Business correspondent, BBC News, Chongqing, China

High in the hills above the sprawling city of Chongqing lies a tiny settlement, whose name translates as Dragon Spring village.

China's Dragon Spring village is a victim of progress

It was given that name because its water was so clear and plentiful. But, in a bitter twist of fate, its famous springs have now run dry.

Like many villages in China, it has fallen victim to the growing needs of a nearby city. In this case, road tunnels have changed the course of underground water flows.

For the peasant farmers of Dragon Spring, this is a disaster.

I was taken to the village by environmental activist Wu Deng Ming. And as soon we arrived, we were surrounded by farmers who were furious at the loss of their water.

Wu Deng Ming assured them that he would keep fighting their corner. He also told me that many other villages in this once-lush area were suffering water problems.

In some cases, this is because untreated sewage is being discharged into rivers. In other places, water has become dangerous and unusable because of pollution by factories.

Water 'bottleneck'

Wu Deng Ming argues that corrupt relationships between factory owners and officials sometimes allow pollution to continue even after the problem has become clear.

He says that his life has been threatened for trying to highlight the plight of people living beside rivers which pose dangers to human health.

Farmers in Dragon Spring want their water back

And this combination of pollution of existing supplies and shortages, created by a fast-growing economy, is causing problems in many parts of the country.

"Among China's 600 cities, 400 of them have water shortages," according to Ma Jun, author of a major study of China's water resources.

"There is a growing consensus," he says, "that water shortages could be the bottleneck to China's economic and social development."

China is already implementing plans to ensure that Beijing does not run short of water during the Olympic Games in 2008.

And in the long term, there is an ambitious plan to build a new system of canals to take water from the south of China to the dry regions of the north.

But Ma Jun warns that there will be a huge price to pay, with as many as 300,000 people being re-located as a result of the North-South plan.

He warns that such grand schemes can have only a limited impact.

Precious resource

Global warming may well increase China's problems. Like many other parts of the world, it has recently experienced some exceptional weather.

Last summer, south-west China suffered a severe drought. The Yangtze River at Chongqing fell to its lowest level for a century.

According to Wu Deng Ming, what is needed in the long term is a much more careful use of a precious resource.

But that will be difficult in a country determined to develop its manufacturing economy at a speed rarely witnessed in human history.

And thinking about long-term solutions is little comfort for the peasant farmers of Dragon Spring village.

Like farmers everywhere, they know that future prosperity depends on a good water supply. They no longer have one.