China has kicked off work on what it says will be the world’s biggest hydropower project, situated on the eastern edge of the Tibetan Plateau. Estimated to cost at least $170 billion, the dam will be built on the lower Yarlung Zangbo River, which becomes the Brahmaputra in India and flows into Bangladesh.

The massive project was announced by Chinese Premier Li Qiang, who called it a “project of the century”, according to state-run Xinhua News Agency.

The project will include five cascading hydropower stations, capable of generating 300 billion kilowatt-hours of electricity every year, equivalent to the annual electricity use of the entire United Kingdom. The chosen location in the Yarlung Zangbo valley is known for a 2,000-metre drop across just 50 kilometres, offering huge hydroelectric potential.

The announcement sparked a rally in Chinese markets. The CSI Construction & Engineering Index surged up to 4%, while shares of companies like Power Construction Corporation of China and Arcplus Group PLC hit their 10% daily limit.

Investors viewed the move as a sign of economic stimulus. Long-term government bond yields rose, and 30-year treasury futures dropped to five-week lows.

Analysts say the project will boost demand for materials like cement and civil explosives. Companies such as Hunan Wuxin Tunnel Intelligent Equipment Co. and Geokang Technologies Co., which supply tunneling equipment and monitoring tech, jumped as much as 30%. Meanwhile, Xizang Tianlu Co. and Tibet GaoZheng Explosive Co. also hit their trading limits.

“From an investment perspective, mature hydropower projects offer bond-like dividends,” said Wang Zhuo, a partner at Shanghai Zhuozhu Investment Management. However, he warned that speculative buying might inflate valuations.

While Beijing says the dam will help meet energy demands without major harm to the environment, environmental groups and neighbouring countries have raised alarms.

NGOs warn the dam could irreversibly damage the fragile ecosystem of the Tibetan Plateau and impact millions of people downstream. India and Bangladesh have both raised concerns over the possible diversion of water.

Pema Khandu, Chief Minister of Arunachal Pradesh, earlier this year claimed that the dam could dry up 80% of the Brahmaputra’s flow in the state and flood large parts of Assam and Arunachal. Experts are also worried about the dam’s location in a seismically active zone.

The dam is being built by the newly formed China Yajiang Group to boost public investment amid slowing economic indicators.

According to a note from Citi, “Assuming 10 years of construction, the investment/GDP boost could reach 120 billion yuan ($16.7 billion) for a single year. The actual economic benefits could go beyond that.”

However, no details have been shared yet about how many people will be displaced by the project. In comparison, the Three Gorges Dam, China’s last mega-dam project, created nearly a million jobs but also displaced roughly the same number of people.

Operations are expected to begin sometime in the 2030s, although an exact date has not been confirmed. The Chinese government has emphasized the importance of ecological conservation as the project moves forward.

You might also be interested in - US to Impose 93.5% tariff on graphite Imports from China