Cost of pollution, deteriorating soil and other impacts surged to 1.3tr yuan in 2008 - equivalent to 3.9% of country's GDP

China's economic growth is inflicting more than a trillion yuan's worth of damage on its environment each year, according to a government report that increases pressure on planners to slow the breakneck speed of development.

In one of the longest-term accountings of ecological degradation, the China academy for environmental planning calculated that the cost of pollution spills, deteriorating soil, vanishing wetlands, and other impacts surged to 1.3tr yuan (£130bn) in 2008. This was equivalent to 3.9% of the country's GDP. Most of these costs do not appear on corporate balance books or government budgets, but they are accumulating year by year to an environmental deficit that threatens the country's long-term prospects.

The central government has increased efforts to clean up the nation's notoriously filthy air and contaminated water, but the report's authors – who are affiliated to the Ministry of Environmental Protection – say the cost of pollution spills and other environmental damage rose by more than 74.8% in the five years up to 2008.

The true figure could be even higher as the authors acknowledge their data is incomplete. A 2007 study by the environment ministry and the World Bank estimated the annual cost of pollution in China at 780bn yuan. This did not fully take into account other forms of environmental degradation, such as loss of biodiversity, desertification and soil decline through over-intensive farming.

In the past week, officials have warned that drought and soil erosion threaten Beijing's water supply and the nation's food security.

Zhou Ying, vice-minister of water resources, warned that China's loss of soil and water "posed severe threats to the ecology, food safety and flood control". His comments appeared in a China Daily report on plans to tighten penalties on projects that worsen the situation.

The capital has had almost no precipitation for the past two months, following an unusually dry rainy season. With reservoirs unable to cope with the demands of a rising and increasingly affluent population, the city has had to rely more on non-replenishable aquifers, to meet its accumulated water deficit of 200bn cubic metres. Reports suggest the city will introduce controls on water use, particularly on heavy users such as factories and ski resorts. Prices for many users are likely to rise.

Government advisers warn the nation's small agricultural surplus is at risk, despite an improved harvest this year. "It's uncertain whether we can keep a sustainable increase in output in the future as the country's grain production capacity is more concentrated in northern areas, where there is a severe water shortage," Chen Xiwen, deputy director of the central rural work leading group, told the media. This followed a similar warning by a UN envoy.

Expectations are high that the government's next five-year plan will strengthen environmental controls and attempt to slow annual economic growth from 10% to 7.5%.

Policy makers believe the country has turned a corner and want to start restoring damaged ecosystems. In the past five years, official statistics suggest two key measurements of pollution — sulphur dioxide and chemical-oxygen demand — have fallen, but other problems remain severe.

"China is at a peak. I think from now on we will go down in terms of environmental degradation as the economy continues to grow," said Prof Pan Jiahua, executive director of the sustainable development research centre at the Chinese academy of social sciences. "We will spend money to improve our ecology and to restore mining areas and tackle subsidence."

Hundreds of people have died in China this year in landslides caused by a combination of floods, deforestation and poor soil management.

The costs of restoring land that is threatened by geological and human hazards will be immense.

Shaanxi province alone will spend 10bn yuan (£1bn) to relocate 2.4 million people from threatened areas in a 10-year plan unveiled this month.