China has more than a fifth of the world's population but only 6 percent of its freshwater resources, and large swathes of the nation, especially in the north, face severe water distress.

  Since 2003, wetlands sprawling across 340,000 sq. km. - an area larger than the Netherlands - have disappeared, officials of China's State Forestry Administration (SFA) told reporters.

  "The investigation shows that China is facing various problems with wetlands protections," Zhang Yongli, vice director of the forestry body, told a news conference, adding that loopholes in protection laws imperil the shrinking wetlands.

  The lost wetland areas have been converted to agricultural lands, swallowed by large infrastructure projects or degraded by climate change, the forestry administration said.

  Wetlands lost to infrastructure projects have increased tenfold since the government's last survey in 2003, Zhang added.

  Water has emerged as a major issue in China. Its scarcity endangers economic growth and social stability, and China has set aside $660 billion for projects to boost supply this decade.

  Wetlands store a large amount of China's freshwater resources, and receding wetlands will leave less water available in the long term, Debra Tan, director of Hong Kong-based non-profit China Water Risk, told Reuters.

  "This will add to the pressure and increase competition for water going forward," she said. "China will be looking to grow more food, and more food in wetlands, as urbanization continues."

  Nearly 70 percent of China's energy production depends on water-intensive coal power. Despite pursuing alternatives, its coal use is expected to grow between 2 and 3 percent a year for the next five years, an analyst at UOB Kay Hian said.

  A study by the World Resources Institute last October showed 51 percent of planned coal-power plants in China were in regions with severe water shortages, potentially pitting energy production against agriculture and basic needs for clean water.

  Although 9 billion yuan ($1.5 billion) was earmarked to protect wetlands during 2005 to 2010, just 38 percent of those funds were actually allocated, said forestry official Zhang.

  For 2011 to 2015, China plans to use 12.9 billion yuan to protect its wetlands.

  (Reporting by Stian Reklev and Kathy Chen; Additional reporting by David Stanway; Editing by Clarence Fernandez)