* Direct economic losses from drought seen near ${esc.dollar}2.3 bln
* Dry spells, floods blight parts of China almost yearly
* Drought threatens to cut into power production (Adds related story, picture links, bullets)
By Chris Buckley
LAKE HONGHU, China, May 30 (Reuters) - The drought gripping stretches of central and eastern China has dried Lake Honghu into an expanse of exposed mud, stranded boats and dying fish farms, threatening the livelihoods of residents in Hubei Province who call this their "land of fish and rice."
Dry spells and floods blight various parts of China nearly every year, and officials are prone to call each the worst in 50 years or longer.
But many residents around the lake said that was a fitting label for the months-long drought that has drastically shrunk the lake, the adjacent Yangtze River, and many other lakes and tributaries along the mighty river&${esc.hash}39;s course through farming and industrial heartlands.
"I&${esc.hash}39;ve never, ever seen it this bad. Look at the rice. It&${esc.hash}39;s all going yellow and the stalks will die unless we get some rain soon," said Ouyang Jinghuang, a pepper-haired 66-year-old farmer tending rice paddies near Lake Honghu.
"We&${esc.hash}39;re all digging wells and buying our drinking water. Usually, we have so much water here that we worry about floods, not droughts."
The dry spell is a jarring reminder of how China, the world&${esc.hash}39;s second-biggest economy, relies on increasingly strained water resources to feed its people and power rapidly increasing numbers of hydro stations.
Those problems could deepen if rains fail to arrive soon.
"There&${esc.hash}39;s still water, but it&${esc.hash}39;s not enough to share around," said Gao Desheng, a farmer in his sixties who was taking a rest after ploughing a field using an ox, the centuries-old farming method still favoured here.
"Before, the sky would always send more than enough water. But this year, the sky has just stopped sending. It&${esc.hash}39;s as if we offended it."
STRANDED IN THE MUD
Lake Honghu lies next to the Yangtze, separated from the river by a strip of land with dykes and sluice gates.
The lake&${esc.hash}39;s waters are usually up to 1.5 metres deep across much of its 348 sq km (134 sq mile) area at this time of year, said Pan Cheng&${esc.hash}39;e, a sun-browned rice farmer and crab breeder who lives along its banks.
"Now where there&${esc.hash}39;s water, it&${esc.hash}39;s about 40 centimetres deep at most," he said. "The farmers are already hard-up, and if that dries up, well, this year will be a disaster."
The lake is dotted with hundreds of fishing and house boats stranded on mud by the receding waters. The remaining muddy water is also being pumped away to keep alive fish farms in ponds on nearby farms and marshland.
"Nearly all the fish have died already, and we&${esc.hash}39;re trying to keep alive the ones left," said Wu Zhaowei, a brawny man in his twenties who was resting on a stranded houseboat after a morning of dragging water to a fish-raising enclosure.
"Many people have already lost all their fish, and that&${esc.hash}39;s a lot of money."
Farmers said they would need generous rainfall in coming weeks, or the first of their two annual rice crops could wither and die, and more of the thousands of fish and crab farms could lose all their stock.
Millions of farmers in Hubei, Hunan, Jiangxi and other provinces face similar threats of damaged or even lost rice crops.
Almost 35 million people across five provinces on the middle and lower reaches of the Yangtze have been affected to different degrees by the drought, the Chinese Ministry of Civil Affairs said on Friday. That number includes 4.2 million who have difficulty getting drinkable water.
Direct economic losses are nearing 15 billion yuan (${esc.dollar}2.3 billion), it said.
China&${esc.hash}39;s economy, the world&${esc.hash}39;s second largest, could probably absorb the crop losses so far with only a small bump in food inflation.
But the drought also threatens to cut into power production, since the Yangtze River and its tributaries feed the Three Gorges Dam, the world&${esc.hash}39;s biggest hydropower project, as well thousands of smaller hydro plants.
"The Yangtze River always has ups and downs, depending on what the heavens do," said Li Bin, a fisherman casting nets on the banks of the river.
"But I haven&${esc.hash}39;t seen it this low before, and it was even lower a few days ago before they let water out of the Three Gorges," said the 60-year-old.
He pointed to a spot on the river bank about two metres above where he was standing.
"That&${esc.hash}39;s about where it should be at this time of year, so we&${esc.hash}39;re going to need lots of rain to catch up. I don&${esc.hash}39;t see it coming soon." (${esc.dollar}1 = 6.49 yuan) (Editing by Ken Wills and Jonathan Thatcher)
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