CITIES AND SCENERY SINK BENEATH YANGTZE DAM

Surveying the impressive scenery at the site of the massive Three Gorges dam last year, the Chinese prime minister, Li Peng, looked up at the Baiyanjian mountain above the Yangtze river and asked: "What is the height of this mountain peak?" A loc al cadre replied: "Some 240m above sea level."

If the official account of the visit is to be believed, Mr Li, a former hydro-electric engineer, then solemnly remarked: "After completion of the Three Gorges Project, the distance between that mountain peak and the 185m dam will only be 50m to 60m. You should build a forest park there to preserve the beautiful scenery and excellent ecological system in the dam zone."

Some 75 years after Sun Yat-sen first proposed a dam across the Yangtze, construction of the Three Gorges dam officially starts today. But opponents insist it will take more than Mr Li's forest park to quell their scepticism about the technical feasibility and environmental impact of one of the world's biggest hydropower developments.

The scale of the £22bn project is forbidding. A reservoir 600km long with an average width of 1km will be created, forcing the moving of 1.13m people, several counties and cities, 140 towns and 4,500 villages. When built, the 175m-high dam wall, nearly two kilometres across, will hold back up to 40 billion cubic metres of water. It is equivalent to creating a lake the area of Singapore.

Scepticism will be off the agenda during today's official ceremonies. For Mr Li, the Three Gorges project, scheduled to be completed in 2009, will symbolise China's triumphant entry into the 21st century. It is an acutely sensitive subject, particularly since, in the 1992 vote by the normally docile National People's Congress, one-third of delegates abstained or opposed the project.

The dam's supporters insist that the 18,000 megawatt capacity power station is essential to meet future electricity demand in the region. The project is also designed to control flooding in the lower Yangtze. Irrigation and transport benefits will boost the development of central China. As for the environmental impact, proponents point out the hydro-station will provide as much electricity as burning more than 40 million tonnes of coal a year.

Opponents of the dam are just as convinced of their case. They claim: engineers have not solved the problem of the build-up of silt upstream from the dam; escalating costs will make the project uneconomic; the forced moving of more than a million people is inhumane; seismic activity in the area could threaten the dam; some species of fish and fauna will be eradicated; and that the series of locks and the "ship-lift" will be unreliable. Added to this, the world renowned Three Gorges scenery will be submerged forever, as will hundreds of archaeological sites.

The mass relocation is the most controversial issue. Some 30bn yuan (£2.3bn) will be spent on relocation in compensation and to build new towns and factories. Only 10,000 people have been moved so far during the two years of site preparation.

The biggest problem may be finance. The official $10bn price-tag for the project, fixed in May 1993, does not include inflation (currently 27 per cent) or the cost of bank loans. Chinese officials accept a figure of $34bn is more realistic, and some foreign analysts believe it could end up at twice that.

To raise funds for the dam, China has imposed a 2 per cent electricity tax, and plans to increase electricity prices further and float other power companies on the stockmarket. It also wants foreign capital, and is considering bond issues, bank loans andexport credits. Last month, Yan Guolin, vice-president of the Yangtze River Three Gorges Project Development Corporation, was in the US touting big contracts for machinery, turbines and transmission equipment, but made it clear China would expect soft loans.

The US administration is assessing the dam project on environmental grounds, and will decide whether to back US business involvement with export finance. Over the past year, Western governments have shifted to a policy of "constructive engagement" over human rights in China. Lured by massive contracts, they may well do the same over the Three Gorges dam.