When it is completed, it will be one of the world's biggest feats of engineering. China's South-North Water Diversion Project, initially a vision of Mao's, will take water from the south of the country to the arid northern region, including the capital Beijing, which suffers from water shortages.

The ambitious project has been under construction since 2002 and it is expected to take almost 50 years for all sections to be complete. It aims to pump almost 45 billion cubic metres of water a year to the north, equivalent to the water flow in the Yellow River in northern China. The water will be pumped from the Yangtze river and its basin.

Testing started last week on the first phase of the eastern part of the project and according to the state-controlled newspaper China Daily, this part of the project will start operation later this year. This phase will transfer water from Jiangdu in Jiangsu Province which is located on the Yangtze River to Shandong Province along the Beijing-Hangzhou Grand Canal.

It is also planned that there will be a middle route and a western route. The middle route is expected to begin operating next year and will supply water from Hubei province to cities in the north including Beijing and Tianjin. The western route, which is supposed to use water diverted from the upper reaches of the Yangtze to replenish the Yellow River, has been besieged with problems and is still at planning stages.

Water shortages have become a huge problem for the world's second largest economy. China has 20% of the world's population but only an estimated 7% of its freshwater water reserves. Experts project that China's water supply will not be able to meet with demand by 2030 if it continues with water use at current levels. Some parts of China are comparable to the Middle East in terms of water resources and water scarcity could have a massive impact on the economy as these regions also contribute up to 45% of China's Gross Domestic Product.

The south of the country has 77% of China's total water resources, according to Debra Tan of China Water Risk, a Hong Kong based non-profit initiative. "The south also has more surface water than the north," she said. "There are less rivers in the north so you have no choice but to use groundwater, which takes a longer time to recharge."

In this environment such a project would appear to make sense, but it has run into delays and setbacks and has been criticised because of its environmental and social impacts.

Ma Jun, the director of the Institute of Public and Environmental Affairs and one of China's most well-known environmentalists was quoted by China Daily newspaper recently as saying that the project will have an impact on the ecosystem of the Yangtze River and will result in lower water quality.

"Though the water diversion will enrich the water supply in the north, its impact on the ecosystem is irreversible," he said.

Chinese officials have admitted that the project will have an environmental impact and that pollution has caused problems. Zhang Jinsong, the deputy director of the Jiangsu office of the project where last week's testing took place told China Daily that pollution is a concern in the lower reaches of the Yangtze river and that 17.4 billion yuan (£1.85 billion) has been spent on pollution prevention projects. But he said "what we pay is much less than what we gain".

"I think the traditional thinking was that let's just shift the water from the rivers that we have in the south to the north so we don't have to use up the groundwater. Which makes sense on a broader level. But of course it brings about environmental concerns about whether if rivers shifted will it damage the ecosystem of the river and so on," said Tan.

Drought in the south of the country is likely to cause problems too and the Yangtze river has been suffering from water shortages as well. In 2011, the Yangtze suffered its worst drought in 50 years. It was caused by a shortage of rainfall and environmentalists claimed the massive Three Gorges Dam also had a negative impact on later levels in the river.

Changing weather patterns is something that may be having an impact on the project. "The weather in China has been changing, so it has been raining more in the north and less in the south due to climate change and this is something that is beyond everyone's control," said Tan.

"Unfortunately it's been raining more in the north and the south has experienced a drought, especially over the last year or so. So a lot of people in the south because they are experiencing drought are wondering why you would then want to divert water from the south to the north, which is a sensible question to be asked," she said.

The project has social implications as hundreds of thousands of people have been resettled so far to make way for the project. In Hubei and Henan provinces, almost 350,000 people were resettled from around the Danjiangkou Reservoir where water is to come for the middle route. But the resettlement has faced many problems with many residents complaining their new homes are shoddily built and they have suffered a loss of their livelihoods.

Another issue for the project, and one which is widespread in China, is corruption. One case was highlighted earlier this year when a former village head was sentenced to 11 years in jail for identity fraud to get compensation related to the project.

In 2008, prior to the Beijing olypmics, US diplomatic cables released under Wikileaks, slammed the project saying that if the Chinese government was serious about dealing with its water crisis, "water conservation and improved agricultural practices need to be pursued rather than a costly water diversion solution.".

The project has been described as a "white elephant" but commentators have said that despite the massive financial overruns, there is no way the government can row back on the ambitious plans.

And despite criticisms and setbacks, the the Chinese government appears determined to continue with the project, claiming it will benefit up to 500 million people.

While it is unlikely to be a silver bullet to solve China's water problems, Tan points out that the government are also working to implement a number of other water saving solutions. "China is also pushing relatively aggressively desalination targets for its coastal cities. It has indicated that it also wants to put water recycling and water reuse in cities. I think you have to look at all of these in combination," she said.

But she added: "I think you have to see it as a whole, at all the options that they are proposing. But it doesn't account for environmental impacts of diverting this water."