Addressing China's Water Scarcity - World Bank Document

Addressing China’s Water Scarcity

Recommendations for Selected Water Resource Management Issues

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Recommendations for Selected Water Resource Management Issues

Jian Xie

with

Andres Liebenthal, Jeremy J. Warford, John A. Dixon, ManchuanWang, Shiji Gao, Shuilin Wang, Yong Jiang, and Zhong Ma

© 2009 The International Bank for Reconstruction and Development / The World Bank1818 H Street NWWashington DC 20433Telephone: 202-473-1000Internet: www.worldbank.orgE-mail: [email protected]

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Cover photo by Jian Xie.Cover design by Circle Graphics.

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y v

FOREWORD xi

ACKNOWLEDGMENTS xiii

ABBREVIATIONS xv

EXECUTIVE SUMMARY xix

1 Introduction 1Background 1Objectives and Scope 2Conceptual Framework and Approach 3Outline of the Report 6

2 Water Scarcity in China: Current Situation 9Spatial and Temporal Disparities 9Water Pollution 11Environmental and Social Impacts and Economic Loss 14External Driving Forces of Water Problems 21

3 Water Resources Management in China: An Overview of Determinant Variables 25Technical Solutions Are Available and Economically Feasible 25Government Commitments, Plans, and Implementation 27Excessive Fragmentation of the Water Management System 29Policy Failures in Water Management 34Summary 40

Table of Contents

4 Improving Water Governance 41The Concept of Water Governance 42The Legal Environment for Water Management 42Institutional Arrangements for Water Resource Management 47Transparency and Information Disclosure 52Public Participation in Water Management 55Summary 59

5 Deepening Water Rights Administration and Developing Water Markets 61Theory of Water Rights and International Practice 61Development of Water Rights in China 67Water Rights Reform in China: Case Studies and Project Insights 69Basics of Water Market and Trading 71International Experience with Water Markets 73Emerging Experience of Water Trading in China: Case Studies 74Challenges and Lessons for China 77Recommendations 80

6 Improving Efficiency and Equity in Water Pricing 83Water Pricing in China: Policy and Practice 83Pricing for Environment and Depletion 86Social Impact and Affordability 88Protecting the Poor 91Other Implementation Issues 94Recommendations 95

7 Protecting Ecosystems in River Basins through Market-Oriented Eco-Compensation Instruments 97

Ecological Compensation Mechanisms in China 98Concept and Methodology of Payment for Ecosystem Services (PES) 100The Growing International Experience with PES Systems 103Potential Use of PES in China 105Recommendations 109

8 Controlling Water Pollution 111Seriousness of Water Pollution 111Causes of Pollution and Key Challenges for Pollution Control 112International Experience 119Emerging Institutional and Policy Issues 121Recommendations 123

9 Preventing Water Pollution Disasters 127Water Pollution Incidents in China 127Concept and Framework for Pollution Emergency Prevention and Response 128International Experience 129Environmental Emergency Prevention and Response in China 132Recommendations 135

C O N T E N T S

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Yvi

10 Summary, Action Plan, and Issues for the Future 137Summary 137Action Plan 140Issues for the Future 140Concluding Remarks 143

APPENDIX: BACKGROUND PAPERS TO THIS REPORT 145

REFERENCES 147

INDEX 153

BOXES

1.1 The World Bank’s Analytical and Advisory Assistance Program—“Addressing China’s Water Scarcity: From Analysis to Action” 3

1.2 Recent Water Resource Management Studies at the World Bank 42.1 Water Crisis in Wuxi in 2007 213.1 China’s 11th FYP for Water Resources Development 283.2 Case Study: Evaluating the Implementation of the Water Pollution Prevention

and Control Plans for the Huai River Basin 303.3 River Basin Agencies in France 333.4 Planning Scarce Water Resources Using Evapotranspiration (ET) Quotas 353.5 Distorted Economic Incentive for Pollution Discharge 394.1 The U.S. Experience in Promoting Law Enforcement 444.2 River Basin Management Legislation in the United States: the Case

of the Susquehanna River Basin 474.3 Three Models of Water Resource Institutions in Europe 484.4 The EU Water Framework Directive 494.5 Integrated River Basin Management 504.6 EU Directive on the Freedom of Access to Information on the Environment 545.1 Water Rights in New Mexico 635.2 From Formal Rights to Contracts and Claims 635.3 Water Allocation Priorities in the Middle East: the Case of Israel 655.4 Registering and Monitoring Users: International Comparisons

with Groundwater Management 655.5 Determining and Defining Environmental Flows 665.6 From River to Farm: Water Rights and Allocation in Inner Mongolia

Water Resources Allocation Plan for the Yellow River 705.7 Defining and Allocating Consumptive Water Rights in the Hai Basin 715.8 The Colorado–Big Thompson (C-BT) Project 735.9 Idaho Water Supply Bank 745.10 Water Markets in the Murray Darling Basin, Australia 755.11 Channel Lining and Water Transfer: Experience from Hangjin Irrigation District,

Inner Mongolia 765.12 Defining, Allocating, and Trading Rights in the Heihe Basin 77

C O N T E N T S

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y vii

6.1 The Marginal User Cost of Water in the Hai River Basin 886.2 Making Price Increases Acceptable: the Case of Chongqing 937.1 Additional Examples of Payments for Ecological and Environmental Services (PES) 1048.1 Implementation of Water Pollution Control Plans for the Huai River Basin 1148.2 Public Participation and Compliance with Environmental Standards: the Case of Japan 1209.1 Water Pollution Incident in the Songhua River 1289.2 The Sandoz Chemical Spill in Switzerland and Extending down the Rhine 1309.3 Examples of National Legislative Systems 1309.4 The Buncefield Incident, U.K. 131

FIGURES

1.1 Water Resource Management 52.1 Spatial Distribution of Annual per Capita Water Resources in China 102.2 Industrial Wastewater Discharge, 1995–2005 122.3 Industrial COD Discharge, 1995–2005 132.4 Trends in Water Quality at Monitored River Sections in China, 1991–2005 152.5 Trends in Water Quality Changes at Monitored River Sections in North

and South China, 1991–2005 162.6 Surface Water Quality, 2000 and 2004 162.7 Groundwater Depletion by Province 182.8 Polluted Water Supplies in China 192.9 Rural Households with No Access to Piped Water and Diarrhea Incidence 202.10 Mortality Rate for Cancer Associated with Water Pollution in China, 2003 203.1 Ministries and Authorities Involved in Water Resource Management 313.2 MEP and MWR Water Quality Data for Huai River, 1998–2004 323.3 Integrated Economic Values of Water and Water Withdrawals in the Primary,

Industrial, and Service Sectors in Eight Regions 386.1 Municipal Water Tariffs and Wastewater Charges by City 856.2 Share of Water and Wastewater Services Expenses for Average

and Low-Income Households 907.1 Main Ecological and Environmental Services by Type of Service 1017.2 The Simple Economics of Payments for Environmental Services 1027.3 The Flow of Compensation from Beneficiaries to Land Users in a PES System 1028.1 Water Quality in Chinese Rivers, 1991–2006 1128.2 Percentage of Sections with Water Quality Grade IV to Grade V+, 2001 and 2005 1138.3 Provincial Sewage Treatment Investments in Yellow River Watershed 1178.4 Centralized Sewage Treatment Rates and per Capita GDP in 14 Provinces

in Northern China, 2003 1188.5 Centralized Sewage Treatment Rates by City Size in 2003 1189.1 Common Elements of an Emergency Response System 128

C O N T E N T S

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TABLES

2.1 Spatial Distribution of China’s Water Resources and Other Social Variables 112.2 Wastewater and Pollutant Discharges, 2000–05 132.3 Current Trophic Level of Lakes and Reservoirs in China 152.4 Water Supply and Renewable Water Resources in China, 2005 172.5 Projected Water Demand 223.1 Performance in Meeting the 10th FYPEP Targets for Water Pollution Control 293.2 Wastewater Treatment Cost for Major Industrial and Domestic Sectors 373.3 Virtual Water Content of Selected Products 383.4 Urban Fixed-Asset Investment during the 9th and 10th Five-Year Period 396.1 Water Tariffs in Beijing, 1981–2007 857.1 Summary of EES, Service Providers, and Service Beneficiaries

in the Lashihai Case Study, China 1067.2 Suggested Increase in Lijiang Old Town Visitors’ Fee to Fund PES Scheme 1077.3 Suggested Entrance Fees to Lashihai Nature Reserve to Fund PES Scheme 1088.1 Planned Water-Related Investment Shares between the Central Government

and Local Sources in Wei River Basin 1168.2 Water Quality of Qixinghe Natural Reserve, 2007 11710.1 Recommended Action Plan 141

C O N T E N T S

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y ix

This report synthesizes the main findings and rec-ommendations from over 30 technical re ports,case studies, and background papers preparedfor the World Bank’s Analytical and AdvisoryAssistance (AAA) program entitled “Ad dressingChina’s Water Scarcity: From Analysis to Action.”Each of the papers responded to a specific govern-ment request. Most were prepared as partnershipsamong Bank staff, international consultants, andChinese research institutions.

The objective of this report is to provide anoverview of China’s water scarcity situation,assess the policy and institutional requirementsfor addressing it, and recommend key areas forstrengthening and reform. In light of the mag-nitude and complexity of water issues in China,and the availability of earlier studies in this areasupported by the Bank and others, the reportdoes not attempt to be comprehensive. Instead,it focuses on selected areas where more analysiswas needed to deepen the understanding of pol-icy and institutional issues, and to develop spe-cific actions to address them. The issues coveredin the report are water governance, water rights,water pricing and affordability, watershed eco-logical compensation, water pollution control,and emergency prevention.

We are particularly pleased with the partici -pation of various Chinese and international insti -tutions in the thematic studies of this AAA. Webe lieve their participation has helped build a con-sensus around strategically important water issuesand a common understanding of the priority ac -tions needed to ad dress them.

Overall, China faces a major challenge in man-aging its scarce water resources to sustain economicgrowth in the years ahead. This is a daunting task,but the analysis of past experience in China andelsewhere provides useful lessons on how to pro-ceed. China’s 11th Five-Year Plan has already pre-pared the ground by moving strategically towardincreased reliance on market-based approaches,supported by the twin pillars of integrated waterresource management and rigorous pollution con-trol. The report’s recommendations, summarizedin the plan of action, identify the key measuresneeded to effectively move forward in this direc-tion. We trust it will assist the government in accel-erating its efforts to address China’s water scarcity.

James AdamsVice PresidentEast Asia and Pacific RegionThe World Bank

Foreword

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y xi

This report synthesizes the main findings andrecommendations of the World Bank’s Ana -lytical and Advisory Assistance (AAA), entitled“Addressing China’s Water Scarcity: FromAnalysis to Action.” The AAA was launched bythe World Bank in fiscal 2006 to assist theChinese government in developing, adopting,and implementing policy and institutionalreforms needed to more effectively addressChina’s water problems.

The AAA benefits from the participation andsupport of various Chinese and international in -stitutions and individuals as well as the U.K. De -partment of International Development (DFID).DFID provided both technical and financial sup-port to the AAA.

The AAA was developed under the generalguidance of Christian Delvoie, David Dollar,Teresa Serra, Magda Lovei, Rahul Raturi, BertHofman, Elaine Sun, Ede Jorge Ijjasz-Vasquez,and Susan Shen at the World Bank. It also re -ceived valuable guidance from Mr. Li Jiange.

This report was prepared by Jian Xie, withAndres Liebenthal, Jeremy Warford, John A.Dixon, Manchuan Wang, Shiji Gao, ShuilinWang, Yong Jiang, and Zhong Ma. DouglasOlson, Geoffrey Spencer, Jie Feng, JunkuoZhang, Liping Jiang, Roger Calow, Tracy Hart,and Xuejun Wang also provided valuable inputs.The report is based on a series of case studies,

background study reports, and World Bank pol-icy notes prepared by a team of Chinese institutesand international groups commissioned by theWorld Bank. Contributors to these reports alsoincluded Ariel Dinar, Geoffrey Spencer, GregBrowder, Hua Wang, Jostein Nygard, LipingJiang, Qun Li, Shenhua Wang, Thomas Zearley,and Ximing Zhang of the World Bank; LinjunZhou, Qi Dong, Wenchao Jiang, and Zhi Zhangof Chong qing City; Shiqiu Zhang, LiangchunDeng, Peng Yue, and Huishan Cui of PekingUniversity; Hao Wang, Hong Gan, and LinWang of the MWR Institute of Water Re -sources; Kunimasa Nishigaya of ALMEC Japan;MWR Development Research Center; Alessan-dra Sgobbi, Anil Markandya, Alessandra Goria,and Carlo Giupponi of Fondazione Eni EnricoMattei Servizi Italy (FEEM); Zhi Lu,Guangchun Lei, and Yi He of ConservationInternational China Program (CI); ShuangZhang of the Nature Conservancy China Pro-gram (TNC); Haixia Zheng and Lubiao Zhangof China Academy of Agriculture Sciences(CAAS); Liqin Mu of Lijiang City PolicyResearch Office; Zhong Ma, Guojun Song,Zhuoni Wang, and Hong feng Chen of RenminUniversity; Yufei Pu, Xueying Zhang, Min Liu,Rui Zhao, and Lei Sheng of the State Informa-tion Center; John Warburton, Susanna Smets,and Leo Horn of DFID China; Roger Calow,

Acknowledgments

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y xiii

Robert Speed, and Dajun Shen of the Australian-China Water Entitlements and Trading Project;as well as Junkuo Zhang, Jie Feng, Jennifer Cole-man, Yuyang Gong, Hongjun Zhang, Yi Wang,Weihua Zeng, Guozhi Liu, Gangyan Zhou, LiliYan, Y.S. Cao, Satoshi Murakuni, Honglin Li,Jingjie Chu, Lian Jiang, and the UK NationalChemical Emergency Center. Robert Livernashprovided edi torial assistance. Yan Wang andMinhnguyet Le Khorami provided administra-tive assistance to the AAA. Circle Graphics han-dled the design and typesetting. Ke Yuan andSukanya Venkataraman also assisted in the pub-lication process.

This report benefited from the written com-ments of Vahid Alavian, Julia Bucknall, Mei Xie,

and Susanna Smets (DFID-China), who servedas peer reviewers, as well as Jan Bojo, David Dol-lar, and Lee Travers during the World Bankinternal review. It also benefited from discus-sions with participants of the technical reviewand consultation workshops held in Beijing inNovember 2006 and November 2007, in Chong-qing City in November 2007, and in LijiangCity in March and November 2007, as well asan international workshop in Beijing in Feb -ruary 2008. In these workshops, a draft of thisreport or its chapters or background reports werereviewed and discussed.

The participation, support, and guidancereceived during the preparation of this report arehighly appreciated.

A C K N O W L E D G M E N T S

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Yxiv

AAA World Bank’s Analytical and Advisory AssistanceADB Asian Development BankAQSIQ Administration of Quality Supervision, Inspection and Quarantine, ChinaBAT Best available technologyBOD Biochemical oxygen demandCAEP Chinese Academy of Environmental PlanningC-BT Colorado–Big Thompson ProjectCCICED China Council for International Cooperation on Environment and DevelopmentCIWRHR China Institute of Water Resources and Hydropower ResearchCOD Chemical oxygen demandCOMAH Control of major accident hazardsCVM Contingent valuation methodDFID Department of International Development, United KingdomECMs Ecological compensation mechanismsEIA Environmental impact assessmentEPBs Environmental Protection Bureaus, ChinaESCAP Economic and Social Commission for Asia and the Pacific, UNET EvapotranspirationEVW Economic value of waterFAO Food and Agriculture Organization, UNFECF Forest Ecosystem Compensation FundFEEM Fondazione Eni Enrico MatteiFYP Five-Year Plan, ChinaFYPEP Five-Year Plan for Environmental Protection, ChinaFYPNWRD Five-Year Plan of National Water Resources Development, ChinaGDP Gross domestic productGEF Global Environment FacilityGHG Greenhouse gasGoC Government of ChinaHAZMAT Hazardous materials

Abbreviations

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y xv

HRN Huai River basin, ChinaIBT Increasing block tariffIDWR Idaho Department of Water Resources, U.S.IRBM Integrated river basin managementIWQI Integrated water quality indexLTO License to operatem3 Cubic meterMAPP Major accident prevention policyMDC Marginal delivery costMEC Marginal environmental (or external) costMEP Ministry of Environmental Protection (formerly SEPA), ChinaMHURC Ministry of Housing and Urban and Rural Construction

(formerly MOC), ChinaMLR Ministry of Land and Resources, ChinaMOA Ministry of Agriculture, ChinaMOC Ministry of Construction (now MHURC), ChinaMOC Marginal opportunity costMOF Ministry of Finance, ChinaMOH Ministry of Health, ChinaMSDS Material safety data sheetMUC Marginal user/depletion costMWR Ministry of Water Resources, ChinaNBS National Bureau of Statistics, ChinaNCEC National Chemical Emergency Centre, UKNCWCD Northern Colorado Water Conservancy District, U.S.NDRC National Development Reform Commission, ChinaNFPP National Forest Protection ProjectNGO Nongovernmental organizationNH3-N Ammonia nitrogenNIWA Nanjing Institute for Water Resources and HydrologyNPC National People’s Congress, ChinaO&M Operations and maintenanceOECD Organisation for Economic Co-operation and DevelopmentPES Payment for ecosystem servicesPOPs Persistent organic pollutantsPPP Public-Private PartnershipPSB Public Security Bureau, ChinaRBMC River Basin Management CommissionRMB China yuan renminbiRMP Risk management planSAWS State Administration for Work Safety, ChinaSCCG The State Council of the Chinese GovernmentSEA Strategic Environmental AssessmentSEPA State Environmental Protection Administration (now MEP)SLCP Sloping Land Conversion Program

A B B R E V I A T I O N S

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Yxvi

SO2 Sulphur dioxideTP Total PhosphorusTREM Transport EmergencyTVIE Township and village industrial enterpriseUNDP United Nations Development ProgrammeUNEP United Nations Environment ProgrammeWAB Water Affairs BureauWB World BankWHO World Health OrganizationWPPCP Water Pollution Prevention and Control PlansWPPCL Water Pollution Prevention and Control LawWRI World Resources InstituteWTP Willingness-to-payWUAs Water user associations

A B B R E V I A T I O N S

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y xvii

For years, water shortages, water pollution, and flooding have constrainedgrowth and affected public health and welfare in many parts of China. North-ern China is already a water-scarce region, and China as a whole will soonjoin the group of water-stressed countries. The combined impact of thewidening gap between water demand and limited supplies and the deterio-rating water quality caused by widespread pollution suggests that a severewater scarcity crisis is emerging.

China’s leadership is aware of the worsening water situation, and is com-mitted to transforming China into a water-saving society. The 11th Five-Year Plan (2006–10) sets a number of policy goals and priorities for waterresource management, such as (a) adopting a more unified or better coordi-nated management system; (b) shifting from supply-side to demand-sidemanagement; (c) integrating river basin management with regional manage-ment; and (d) establishing a preliminary system of water rights trading.

To date, however, the increasing scarcity of water resources has not beeneffectively managed. Many national and local water resource managementand water pollution control plans have not been fully implemented and manytargets, including water pollution investment targets, have not been achieved.The economic costs of water pollution and scarcity are high. Water pollutionposes a serious threat to public health and causes major economic and envi-ronmental losses, estimated by the Chinese government at the amount equiv-alent to about 1.7 percent of GDP or more in 2004.

OBJECTIVES AND SCOPE OF THIS REPORT

This report reviews China’s water scarcity situation, assesses the policy and insti-tutional requirements for addressing it, and recommends key areas for strength-ening and reform. It is a synthesis of the main findings and recommendationsfrom analytical work and case studies prepared under the World Bank Analy -tical and Advisory Assistance (AAA) program entitled “Addressing China’s

Executive Summary

�

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y xix

Water Scarcity: From Analysis to Action.” Thesestudies focus on several strategically importantthematic areas for China where additional researchwas needed, as identified by the research team andadvisory group based on a review of pressing issues.These areas are governance, water rights, pricing,ecological compensation, pollution control, andemergency response.

The approach has been to evaluate Chineseand international experience to identify policyand institutional factors that have proven effec-tive in promoting the adoption of water conser-vation and pollution reduction technologies. Theresearch was based on literature reviews, qualita-tive and quantitative policy analyses, householdsurveys, field trips, and case studies to developfeasible recommendations for a plan of actionbased on realities on the ground.

CHINA’S EMERGING WATER CRISIS

China’s water resources are scarce and unevenlydistributed. China’s renewable water resourcesamount to about 2,841 km3/year, the sixth largestin the world. Per capita availability, however—estimated at 2,156 m3/year in 2007—is onlyone-fourth of the world average of 8,549 m3/yearand among the lowest for a major country. WhileChina as a whole is facing serious water stress, itsproblems are made more severe by the fact thatits water resources are unevenly distributed, bothspatially and temporally.

China’s water resources availability variesgreatly over space. The South, with averagerainfall of over 2,000 mm/year, is more water-abundant than the North, where rainfall onlyaverages about 200–400 mm/year. Per capitawater availability in northern China is only 757 m3/year, less than one-fourth that in south-ern China, one-eleventh of the world average,and less than the threshold level of 1,000 m3/yearcommonly defined as “water scarcity.”

The temporal pattern of precipitation fur-ther intensifies the uneven spatial distribution ofwater resources. With a strong monsoonal cli-

mate, China is subject to highly variable rainfallthat contributes to frequent droughts and floods,often simultaneously in different regions. Whileprecipitation generally declines from the south-eastern coast to the northwestern highlands, itvaries greatly from year to year and from seasonto season. In the Hai and Huai basins, for exam-ple, river flows fall to 70 percent of their averagesone year in four and to 50 percent one year intwenty. Dry years tend to come in succession,accentuating the water problem.

China’s Water Productivity Is Low

China’s water productivity of $3.60/m3 is low incomparison with the average of middle-income($4.80/m3) and high-income ($35.80/m3) coun-tries. This gap is largely due to differences inthe sectoral structure and efficiency of waterconsumption.

Water productivity in agriculture, whichaccounted for 65 percent of total water with-drawals, is the lowest of all sectors, due to exten-sive waste in irrigation systems, and suboptimalallocation among crops and between differentparts of the same river basin. Only about 45 per-cent of water withdrawals for agriculture areactually used by farmers on their crops. In indus-try, which accounts for 24 percent of total waterwithdrawals, the water recycling level is 40 per-cent on average compared to 75–85 percent indeveloped countries.

A major contributor to China’s low water pro-ductivity is its very inefficient water allocationsystem. A recent study of the Hai basin has foundthat water productivity, as reflected by the eco-nomic value of water (EVW) in different uses,ranges from 1.0 yuan/m3 in paddy irrigation to12.3 yuan/m3 in vegetable fields, 21.3 yuan/m3

in manufacturing, and 33.7 yuan/m3 in the ser-vices sector. The magnitude of these differencesin an extremely water-short region is indicativeof a serious lack of market consciousness in thewater allocation process.

China’s water scarcity is aggravated by ex -tensive pollution. Over the past three decades,

E X E C U T I V E S U M M A R Y

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Yxx

despite great efforts to control it, water pollu-tion has increased, spreading from the coast toinland areas and from the surface to under-ground water resources. Total wastewater dis-charges have steadily risen to 53.7 billion tonsin 2006. Domestic wastewater discharges havesurpassed industrial discharges since 2000, andhave become the most important pollutionsource. It was not until 2007 that the risingtrend of water pollution discharges began toshow a sign of reverse, as total 2007 COD dis-charges were reported to be 3.14 percent lessthan in 2006. However, the water pollution sit-uation is still very serious. A major contributingfactor is that only 56 percent of municipalsewage is treated in some form, versus 92 per-cent of industrial discharges.

Water pollution incidents also represent aserious threat. They overwhelm the already frag-ile water environment, contaminate downstreamdrinking water for millions of people, and severelythreaten public health and the quality of life.

As a result of continuing pollution, the waterquality of most of China’s water bodies has beenextensively degraded. In 2004, of all 745 moni-tored river sections, 28 percent fell below theGrade V standard (that is, unsafe for any use),and only 32 percent met Grade IV–V standards(that is, safe for industrial and irrigation usesonly). Of 27 major monitored lakes and reser-voirs, fully 48 percent fell below Grade V stan-dards, 23 percent met Grade IV–V standards,and only 29 percent met Grade II–III standards(safe for human consumption after treatment).

The extent of pollution aggravates the scarcityof water. At present, approximately 25 km3 ofpolluted water are held back from consumption,contributing to unmet demand and ground-water depletion. As much as 47 km3 of water thatdoes not meet quality standards are neverthelesssupplied to households, industry, and agricul-ture, with the attendant damage costs. A further24 km3 of water beyond rechargeable quantitiesare extracted from the ground, which results ingroundwater depletion.

Water Scarcity and Pollution EntailSubstantial Costs

The most important costs relate to the healthrisks associated with polluted drinking watersources. Over 300 million people living in ruralChina have no access to safe drinking water. Theeconomic cost of disease and premature deathsassociated with the excessive incidence of diar-rhea and cancer in rural China has been esti-mated, based on 2003 data, at 66.2 billion yuan,or 0.49 percent of GDP.

Water scarcity is also undermining the ca -pacity of water bodies to fulfill their ecologi-cal functions. Due to excessive withdrawals, evena minimum of environmental and ecologicalflows cannot be ensured for some major riversin North China. To compensate for the deficitof surface water, North China has increasinglyrelied on groundwater withdrawals, often inexcess of sustainable levels. Such overexploitationhas resulted in the rapid depletion of ground -water reservoirs, leading to the lowering of watertables, the drying up of lakes and wetlands, andland subsidence in many cities.

The World Bank’s Cost of Pollution in Chinastudy estimated that the water crisis is alreadycosting China about 2.3 percent of GDP, ofwhich 1.3 percent is attributable to the scarcityof water, and 1 percent to the direct impacts ofwater pollution. These estimates only representthe tip of the iceberg. They do not include thecost of impacts for which estimates are unavail-able, such as the ecological impacts associatedwith eutrophication and the drying up of lakes,wetlands, and rivers, and the amenity loss fromthe extensive pollution in most of China’s waterbodies. Thus, total costs are undoubtedly higher.

A PLAN OF ACTION FORADDRESSING WATER SCARCITY

As outlined above, the major factors underlyingthe emerging water crisis point to the need forChina to reform and strengthen its water re -source management framework. In line with the


A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y xxi

broad strategy of developing a market economy,the focus of the reform needs to be on clarifyingthe role of and relationships between govern-ment, markets, and society; improving the effi-ciency and effectiveness of water managementinstitutions; and fully embracing and usingmarket-based instruments as much as possible.

On this basis, the following thematic areaswere selected for attention: (a) improving watergovernance; (b) strengthening water rights admin-istration and creating water markets; (c) improv-ing efficiency and equity in water supply pricing;(d) protecting river basin ecosystems throughmarket-oriented eco-compensation instruments;(e) controlling water pollution; and (f ) improvingemergency response and preventing pollution dis-asters. The main findings and recommendationsare summarized below. The combined set of rec-ommendations, summarized in a table in the finalchapter of this report, represents an action plan foraddressing China’s water scarcity.

IMPROVING WATER GOVERNANCE

To address the growing complexity of waterresource management, China is moving from atraditional system with the government as themain decision-making entity toward a modernapproach to water governance that relies on (a) asound legal framework, (b) effective institutionalarrangements, (c) transparent decision makingand information disclosure, and (d) active pub-lic participation.

An Effective Water GovernanceSystem Has to Be Built on a Sound Legal Basis

China has made much recent progress in im -proving its legal framework. Even so, the effec-tiveness of the legal framework for water resourcemanagement is unsatisfactory, as evidenced bythe growing seriousness of water-related problems,including rampant water pollution nationwide. Itsmain weaknesses and areas for improvement are:

Lack of mechanisms and procedures

Existing laws and regulations are usually focusedon principles and lack mechanisms and proce-dures for enforcement, such as supervision, mon-itoring, reporting, evaluation, and penalties fornoncompliance.

Incomplete legal system

The coverage of the existing legal framework isstill limited. For example, the Water PollutionPrevention and Control Law requires that thestate establish and improve the compensationmechanism for ecological protection of the waterenvironment, but there are no national laws orregulations to support it. Neither is there a lawon water rights and trading.

Ambiguities and conflicts between legal provisions

Some laws contain ambiguities. For example, theWater Law does not clearly define the authorityof local governments and river basin manage-ment commissions (RBMCs). Such ambiguityin the provisions causes a vacuum of authorityand weakens the effectiveness of the legal system.

Existing Institutions Are Fragmentedand Uncoordinated

China’s water resource management system ischaracterized by extensive fragmentation, bothvertical and horizontal. Horizontally, at everylevel of government several institutions are in -volved in water management, with frequentoverlaps and conflicts of responsibilities. Thisunwieldy system has increased the administra-tive cost of coordination among different insti-tutions and undermined the effectiveness ofwater management.

The water management system is also verti-cally fragmented. It is mainly built upon theadministrative boundaries of different levels ofgovernment rather than at the river basin level.Each level of government has its own focal pointsand priorities. This makes the management of


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transboundary rivers—most of China’s rivers—very difficult.

China has established RBMCs for its sevenlarge rivers as subordinate organizations of theMinistry of Water Resources. However, thesecommissions have limited power and have norepresentatives from the affected local govern-ments in the basin. As a result, it is difficult forthe RBMCs to coordinate with the provinces/municipal administrations and other stake-holders in river basin management.

Transparency Is Limited

Transparency means that the public can havebetter access to information on water resources,policies, and institutions on water-related issuesand water-related behaviors of various stake-holders. The Chinese government has been awareof the importance of transparency and madeefforts to increase the openness of public admin-istration, but as of now, information on waterquality and quantity, water users, and pollutersremains inaccessible to the public and to govern-ment agencies outside of the sector.

The legal definition of what informationshould be disclosed to the public is not clear, sothat many organizations or enterprises refuse todisclose water-related information in the guiseof protecting state or business secrets. Finally,the citizens’ right of access to information is notemphasized in the laws, so that although severalregulations on information disclosure have beenpromulgated, they are not yet implemented wellbecause of weak supervision by the governmentand the public.

Public Participation Is Very Low

Public participation is helpful to tailor policy tolocal situations, to maximize the social welfareand utility of resources use, and to protect vulner-able groups. Major forms of public participationin water management in China are (a) publicopinion surveys; (b) public hearings; (c) experts’assessment/reviews of development plans and

programs; and (d) stakeholder coordination. Butactual public participation is still very low, whichis attributable to limited awareness by govern-ment agencies and the general public regardingthe potential for public participation in watermanagement, lax legal requirements and super -vision, and legal barriers to the registration andparticipation of NGOs, which should be expectedto play a very active role.

Recommended Actions

Amend and improve existing water-relatedlaws and regulations

Given the vagueness and even contradictions ofexisting laws and regulations, the NPC shouldreview and revise existing water-related laws, withparticular attention to the enforcement issue andintegrated water management.

Improve law enforcement

Improving law enforcement is the number onepriority to make the legal framework useful andeffective. A series of actions need to be taken:

Implementation procedures: Detailed imple-mentation procedures should be stipulated inall water-related laws and regulations to makeexisting laws and regulations operational andenforceable.

Strengthened supervision and inspection: Super-vision and inspection by the national and lo -cal congresses and administrative branchesshould be strengthened.

Public participation: The public should be em -powered to help monitor and track down vio-lators and supervise local agencies responsiblefor law enforcement, and public-private part-nerships should be encouraged by laws andregulations.

Establish a national-level organization for integrated water management

One option is to establish a State Water Re -sources Commission as a coordinating and steer-ing organization on water-related affairs across


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the country at the highest level of government.This commission will serve as a high-level waterpolicy-making body, much like the newly estab-lished State Energy Commission headed by thepremier. Another option would be to merge majorwater-related duties currently under different gov-ernment agencies (namely MWR, MEP, MOA,MHURC, and MLR) and establish a new superministry to implement unified management ofwater quantity and quality, surface water andgroundwater, water resource conservation anduse, and water environmental protection.

Convert RBMCs into intersectoral commissions

The existing RBMCs for the seven major riversshould be converted into true intersectoral andintergovernmental “commissions” with repre-sentatives from relevant line agencies and localgovernments, instead of being subordinates ofMWR. In the long run, RBMCs should be madeindependent of MWR and accountable to theState Council directly.

Make public information disclosure acompulsory obligation of the government,companies, and relevant entities

Public information disclosure requirementsshould be incorporated into all major develop-ment strategies, policies, regulations, and opera-tional procedures. The information must beaccessible for the public and concerned groups/communities and be made available throughmultiple channels.

Build a strong legal foundation for public participation

The rights of public participation should beemphasized in relevant laws to empower the pub-lic. In such laws as the Water Law and the Envi-ronmental Protection Law, articles should beadded to explicitly grant rights of participationin water management to the public. Three rightsneed to be clearly defined: (1) the right of accessto information, (2) right of participation in deci-

sion making, and (3) right to challenge water-related decisions by the government.

STRENGTHENING WATER RIGHTSADMINISTRATION AND CREATINGWATER MARKETS

The allocation of water rights and the establish-ment of water markets can improve the eco-nomic efficiency of water use in China and helpresolve water shortages. China has been estab-lishing a water rights administration since 2000,and has made remarkable progress in some pilot-ing areas. A preliminary framework of laws, reg-ulations, and institutions on water rights hasbeen developed at the national level. Additionalactions are needed to deepen water rights admin-istration and develop water markets.

Water Allocations ExceedSustainable Levels

At present, there is a general lack of conside -ration and provision for environmental waterrequirements, with the result that for many sur-face water bodies and underground aquifers,water withdrawals are far in excess of sustain-able levels. In some instances, water has beenset aside for the environment, but these vol-umes are not allocated on a sound scientificbasis. This poses a threat to the long-termhealth and sustainability of the water resourcesin question.

Water Rights Are Still Unclear and Unenforceable

Establishing clear, enforceable rights is an essen-tial first step toward the creation of water mar-kets. At present it is not always clear who holdsthe right and what the right entitles the holderto. There are few rules in place that protectagainst changes to water rights and no clearprovisions dealing with what happens when aright is adversely affected.


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Water Rights and Allocations Need to Be Based on the Evapo transpiration Approach

Past water management in China, based onwater abstraction only, has encountered onlylimited success because the saved water was usedto irrigate more land; that is, more water wasconsumed and less water returned to the surfaceand underground water systems. Recent advance-ments in remote sensing and geographic infor-mation system (GIS) technologies have made itfeasible to manage water resources in terms ofthe amounts of water actually consumed throughevapotranspiration (ET). The portion consumedthrough ET is the consumptive use that is lostand not available for users downstream. In con-trast, the portion that returns to the surface orunderground water systems is still available forother users downstream. ET technology thusmakes it feasible for China to adopt a more sci-entific approach for its water rights allocationand administration.

Water Rights Administration andTrading Need to Be Strengthened

China still has a distance to go in establishing awell-functioning water rights administrationsystem. First, water rights and water rights trad-ing represent a relatively new concept for waterresources management in China, and requirereforms in institutions and policies that havebeen traditionally based on “command-and-control” regulation. Second, implementing trad-able water rights requires improvements in themonitoring and information system for decisionmaking and the enforcement of regulations.Third, there is no precedent for implementingtradable water rights in a large developing coun-try like China, with its unique physical, eco-nomic, and social background. It is a challenge,but international experience and pilot projectssupport tradable water rights as a promisingapproach for China to pursue.

Recommended Actions

Use water resources allocation plans as the basis for water rights

Water resources allocation plans should bedeveloped—first at the basin level, then at theregional level—as the basis for allocating waterwithin a basin. Plans should set a cap for totalwater abstraction permits in the plan area andclearly identify the water available for abstrac-tion, the amounts of water consumed, and theamounts that must be returned to the local watersystem.

Recognize ecological limits of water resources

Water resource allocation plans should recognizethe requirements of the in-stream environmentfor water. Water should be set aside for this pur-pose, recognizing the importance of differentparts of the flow regime for different parts of theecosystem.

Water withdrawal permits need to beclearly specified and implemented

Permits must be specified in volumetric termsand need to be linked to the initial allocation ofwater established in the water resource plan.The total amount of water withdrawal permitsshould be limited to the maximum allowableamount based on sustainable water use with suf-ficient consideration of environmental uses andnew water uses.

Strengthen water rights administration andprovide certainty and security for holdersof water rights

Water rights administration needs to be strength-ened, with the conditions, procedures, rights,and obligations for water withdrawal, consump-tion, and return flows clearly specified. Theprocess for granting water rights, and in partic-ular for allocating water on an annual basis,should be clear and consistent. This will providecertainty and security for holders of water rights.


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Adequate monitoring, reporting, and enforce-ment are part of effective water rights adminis-tration. Public participation, such as grouppar ticipation through water user associations inrural areas, is critical to the success of waterrights management.

Where feasible, an ET-based waterresource management should be promoted

The ET approach focuses on actual water con-sumption and hence encourages more efficientuse of water, increased return flows, and theadoption of more water-saving technologies.The ET approach can thus help improve thesustainability of the water resource system inboth agricultural and urban areas. Governmentsshould promote the ET-based water resourcemanagement, especially in water-stressed areas.

Adopt a step-wise approach to water trading

The sale or lease of water rights can be an effec-tive approach for raising the productivity ofand returns to water within and between sec-tors. But before trading starts, the entitlementsof users under different levels of resource avail-ability must be clearly defined. Once all stake-holders have gained experience in managing,monitoring, and observing rights, trading optionscan be explored, often starting with temporarytrading in well-defined systems where infra-structure for delivery and monitoring is alreadyin place.

IMPROVING EFFICIENCY ANDEQUITY IN WATER SUPPLY PRICING

Traditionally, China’s policies have focused onmeeting the demand for water by increasing thesupply rather than managing demand. An impor-tant factor contributing to the current water-scarcity crisis is the lack of effective water resourcepolicies that focus on demand management andencourage efficient water use.

Water Pricing Can Be an EffectiveMeans to Reduce Demand for andImprove the Economic Efficiency of Water Use

The central and local governments in Chinahave recognized this, and allowed water tariffsto gradually rise since the early 1990s. Even so, repeated studies have shown that water and sewerage prices in China are still below the requirements for financial cost recoveryand take little account of environmental anddep letion costs. This has made it difficult forthe water and sewerage utilities to adequatelymaintain their infrastructure, expand their ser-vice to outlying and poorer areas, and operatetheir infrastructure in a manner that meetsenvironmental standards. Thus, the first steptoward setting prices right should be to at least meet the utilities’ financial performancerequirements.

To Promote Efficient Water Use,Water Prices Also Need to Reflectthe Marginal Opportunity Cost of Supply

Prices based on marginal opportunity cost(MOC)—which includes production, environ-mental, and depletion costs—would signal thefull scarcity value of water to the consumer andinduce the appropriate adoption of water-savingand efficiency technologies. Current tariff regu-lations in China already allow all of the com -ponents of marginal opportunity cost to berecognized and signaled to the consumer. Pro-duction costs are contained in the water devel-opment fee, environmental and depletion costsin the water resource fee, and waste disposal inthe sewerage fee. But local authorities have beenslow to fully implement the necessary tariffincreases allowed by regulation, mainly as aresult of concerns about the impact on the low-income population.


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Equitable and Efficient Tariff ReformIs Feasible

Although often stemming from concern for thewell-being of poorer households, low water tar-iffs have perverse consequences for income dis-tribution. Results from household surveys showthat the social impact of low water pricing on thepoor is negative; they receive little or no benefitfrom the water price subsidies, but pay a highprice for poor water supply services in terms ofhealth impacts and the high cost of alterna-tives. On the other hand, tariff reforms can bedesigned to at least partially protect the poorfrom the impact of higher rates. Provided theincreased revenues are used to extend the serviceinfrastructure and improve the quality of service,a win-win solution can result. In China and othercountries, three such approaches have been used:(1) increasing block tariffs (IBT), as alreadyenshrined in Chinese regulations; (2) incomesupport; and (3) price waivers for the pooresthouseholds.

Recommended Actions

Given the low efficiency of and high demand forwater use, China should aggressively use pricingpolicy to manage water demand. This means thatwater tariffs, including wastewater treatmentfees, have to continue increasing in the years tocome. For pricing reform to be successful, the fol-lowing recommendations are important.

Adopt a step-wise approach to tariff reform

The public should be fully informed of the prob-lems of low service quality, indirect costs, ineffi-ciency caused by underpricing or subsidizationof water, and the importance of water tariffincreases. Public hearings, consumer education,and transparency are necessary to overcomeresistance to price reform, especially when exist-ing service quality is poor.

Raise water tariffs to fully reflect its scarcity value

While the first step in price reform must be tofully achieve financial cost recovery, pricing ofwater and sewerage should follow the MOCapproach and reflect the incremental costs ofwater and its disposal, including the costs ofenvironmental damage in production and con-sumption and the opportunity costs of deple-tion. A system should be devised in which MOCestimates can be integrated into regional andnational water management and economic plan-ning systems so as to enhance the market con-sciousness of the allocation process while thetrading system is being developed.

Address the social impact of tariff increases

The increasing block tariff approach, especially atwo-tier tariff structure, is recommended for resi-dential consumers. The first block should followthe WHO-recommended 40 liters per capita perday (i.e., about 5 m3 per month for a householdof four), with the second block gradually increas-ing to full MOC. Other pricing or income sup-port methods for the poor are encouraged to beadopted based on local political and economic cir-cumstances. Water tariffs for commerce andindustry should cover the full MOC.

Convert the water resource fee to a tax

The water resource fee, which is currently re -tained by local governments, provides little incen-tive for sustainable water resource developmentbasin-wide or at the national level. The fee shouldbe converted into a tax, the proceeds of which willbe transferred to and appropriated by the centralgovernment. Such a conversion will provide afinancial basis for the central government to facil-itate more efficient water resource planning basedon national priorities for water resource develop-ment and management. The funds of local waterresource management programs should be de-linked from the revenue of water resource fees and


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directly provided by central and local govern-ments through their annual budgets.

PROTECTING RIVER BASINECOSYSTEMS THROUGH MARKET-ORIENTED ECO-COMPENSATIONINSTRUMENTS

Addressing water scarcity requires protecting thesources of the water, especially the ecosystems inthe upper reaches of river basins, such as forests,wetlands, and even agricultural lands. Both cen-tral and local governments are increasingly inter-ested in the use of government transfers frompublic funds—under the name of ECMs—toprotect ecosystems in the upper reaches of riverbasins. But the current approach relies on pub-lic financial transfers (mainly from the centralgovernment), and lacks a direct link betweenecosystem service providers and ecosystem ser-vice beneficiaries. This raises some doubts aboutthe long-term financial sustainability and effi-ciency of ECMs.

Payment for Ecosystem Services(PES) Offer a More Market-OrientedApproach

In a PES system, a market for environmental ser-vices is created whereby money is collected orreallocated from the beneficiaries who use envi-ronmental services (water consumers) and pay-ments are made directly to those who providethese services (such as watershed land managers).PES offers a more market-oriented and self-financing alternative to the government-fundedECMs currently used in China.

PES Has Been Tested in OtherCountries and Has Great Potential in China

PES has been developed and implemented inother countries with encouraging results and canbe applied in China, as illustrated by the case

study of the Lashihai Nature Reserve in LijiangCity, Yunnan Province. While PES schemes arenot a universal panacea, nor always easy to intro-duce, they should be treated as one step forwardto enhance and complement existing efforts ofecosystem conservation in China.

Recommended Actions

Continue to expand the application of ECM

Given the urgency of protecting ecosystems inthe upper reaches of river basins for water sup-ply, China should continue to expand its ECMprograms, especially when the ecosystem serviceproviders and beneficiaries are distant from oneanother and their links cannot be explicitlydefined, or where there are obvious poverty alle-viation benefits.

Promote the piloting of PES

To improve the efficiency and effectiveness ofecological compensation and reduce the finan-cial burden on governments, China should vig-orously pilot more market-oriented approachesfor ecological compensation, such as PES. Ithas much appeal in China and should be pilot -ed and promoted, beginning with some smallwatersheds.

CONTROLLING WATER POLLUTION

The government has acknowledged the serious-ness of water pollution and placed it at the topof pollution problems facing the country. Sincethe mid-1990s, COD reduction has been oneof two major nationwide total emission controltargets (the other is SO2). Even so, total CODemissions have increased since the early 1990s,largely due to an increase in emissions of un -treated municipal wastewater. In spite of over adecade of effort, it was not until 2007 that therising trend in total COD discharges appears tohave finally been reversed.


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There Is Inadequate Investment in Water Pollution Control and a Large Amount of Wastewater Is Still Untreated

The investment shortfall contributed to the fail-ure to meet pollution control targets—such asreducing COD discharge by 10 percent by theend of 2005—and to environmental deteriora-tion. With insufficient investment, wastewatertreatment capacity, including sewerage networks,has not expanded adequately, especially in smallcities and townships. As a result, only 56 per-cent of the 53.7 billion tons of domestic waste-water discharged is treated in some form; therest is still discharged without any treatment,offsetting the significant reduction in industrialpollution.

Many Water Pollution Preventionand Control Plans Have Failed to Achieve Their Objectives

China has prepared water pollution preventionand control plans at the national, local, and riverbasin levels. So far, many of these plans havefailed to achieve their targets. For example, theHuai River basin was the first river basin inChina to undertake a major planning effort forwater pollution control. Evaluation of the firsttwo five-year plans (1996–2005) found that thewater quality and total emission control targetswere not achieved. For instance, the 9th FYP’s(1996) water quality target for 2000 was toachieve Class III for the entire main stream.However, by 2005, the water quality at 80 per-cent of monitoring sites in the basin was still atClass IV or worse.

Serious Water Pollution IsAttributable to Institutional and Policy Shortcomings

The effectiveness of pollution control is con-strained by several issues: (a) poor law enforce-

ment and compliance; (b) failure to implementwater pollution prevention and control plans;(c) lack of incentives for wastewater treatment;(d) a wastewater discharge control system under-mined by problems with the issuance of permits,and their monitoring and enforcement; (e) lackof integrated river basin management and weaklocal commitment to pollution control underthe influence of local and sectoral interests; (f ) increasing and unchecked pollution fromtownships and nonpoint sources; and (g) insuf-ficient and spatially imbalanced investment inwastewater treatment.

A Number of Issues Deserve Greater Scrutiny

Some of these issues include carefully defining theobjectives of the Water Pollution Prevention andControl Law; providing more reliable and com-plete information on pollution sources; emphasiz-ing the linkage between water pollution andunsafe drinking water sources; integrating pollu-tion control measures, especially the use of permitsystems; strengthening the deterrent function ofcurrent legislation and enforcement systems formanaging water pollution; promoting routinepollution prevention over after-incident treat-ment; and addressing the relationship betweenthe polluter-pays principle and governmentresponsibility at the regional and national level,especially in those areas where governments havesome responsibility due to their past activities.

Recommended Actions

The key to controlling and solving serious waterpollution in China is the strengthening of lawenforcement to improve compliance by indus-tries and other polluters. The government has touse all available means—legal, institutional, andpolicy—and, through them, mobilize the publicand motivate the private sector to ensure full com-pliance with all pollution control requirements.Specific recommendations are provided below.


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Improve pollution control planning

Water pollution control planning in river basinsshould be improved, with the introduction ofmore realistic and tangible targets. Pollution con-trol should not be regarded as the final target, butthe way to achieve a clean and healthy water envi-ronment. This requires a long-term, integrated,but progressively targeted strategy for the protec-tion of water quality. The financing, implemen-tation, monitoring, and evaluation mechanismsshould be well-embedded in the plans.

Unify and strengthen the pollutionmonitoring system

Better monitoring capability is required for thewhole range of measures required for effectivepollution control. The current segmented watermonitoring system—involving MEP, MWR,and MHURC—has to be reformed. In the shortterm, the systems should be better coordinated,with a unified set of monitoring criteria and pro-cedures for releasing water quality informationin one channel. In the medium term, the differ-ent monitoring systems can be consolidated andmanaged by a third entity independent of anysingle ministry.

Strengthen the wastewater discharge permit system

To be effective, the wastewater discharge permitsystem should be built on a more solid legalbasis, with a special administrative regulationissued by the State Council. The issuing of per-mits has to be technically sound and based onenvironmental quality, with daily maximumlevels of discharge specified in order to achieveambient targets. It should target key pollutantsfirst and aim to control the total pollution loadwithin the allowed pollution carrying capacity ofthe environment.

Increase reliance on market-based instruments

Pollution control efforts should take full advan-tage of market mechanisms to overcome market

failures in pollution reduction. Economic incen-tive measures (such as the pollution levy andfines) have to be rigorously enforced to providea strong incentive for polluters to comply withemissions standards and other environmentalrequirements. The upper limits of maximumfines specified in current laws should be increased.Furthermore, the system of trading of water dis-charge permits should be gradually introduced inwatersheds to improve the economic efficiency ofwastewater treatment.

Enable litigation for public goods

The litigation system should be used to givemore protection to the public interest. The lawshould encourage or require local governmentson behalf of the public to initiate lawsuitsagainst polluters and demand full compensa-tion for damage to public goods—for example,to ecosystems—where damage to individuals ishard to identify. For significant cases, MEP itselfmight be the plaintiff.

Control rural pollution

Attention should be given to addressing risingwater pollution in small towns and rural areas.The regulation of industrial and municipal sourcesin small towns and rural areas should be carriedout by local EPBs and supervised by MEP. Withregard to wastewater, sewage treatment in smalltowns should be promoted through the intro-duction of cost recovery policies, selection ofefficient technologies, and the reuse of treatedwater for irrigation.

Increase financing for market gap areas

There are several areas where market-basedapproaches cannot be expected to effectivelyaddress, for which the central government needsto earmark special budgets with which to financewater pollution prevention and control. Theseareas include: (1) transprovincial pollution con-trol and management, (2) important ecologicalregions and water sources, (3) dealing with acci-dents affecting international water bodies, and


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(4) other issues with a national dimension thatcannot be properly managed at the local level.

IMPROVING EMERGENCY RESPONSE AND PREVENTINGPOLLUTION DISASTERS

Despite some successful recent cases of envi-ronmental emergency response, the high fre-quency of serious pollution incidents and theirassociated costs in China support the need forcontinued reform and strengthening of exist-ing institutions for environmental pollutionemergency prevention and response. Currentpractice in emergency management still sug-gests that the main focus of local govern-ments has been on mitigation after an incident.But prevention of incidents by strict enforce -ment of appropriate policies and regulations istypically a more cost-effective approach andshould be emphasized. A situation analysisshows that the problem is attributable to vari-ous factors, ranging from weak legal and insti-tutional arrangements, lack of incentives, andpoor chemical management systems to inade-quate on-site coordinating, monitoring, andreporting.

Based on lessons from the international expe-rience, the basic elements of an effective preven-tion and response system, as already developedand implemented in many developed coun-tries, include (a) a shift from mitigation to afocus on risk assessment, prevention, and plan-ning; (b) enhancing the preparedness of firstresponders; (c) rigorous implementation of thepolluter-pays principle to shift financial res pon -sibility for the costs of potential disasters topol luters, (d) the establishment of chemicalinfor mation management sys tems to track theflow of toxic chemicals and provide the necessaryinformation for a quick and effective response ifan accident occurs, and (e) effective public infor-mation systems to provide timely information inthe event of an emergency.

Recommended Actions

Shift from mitigation to prevention and planning

Environmental protection and work safety agen-cies should be the competent authorities to ap -prove the adequacy of environment and safetyrisk assessment, applying a thorough risk man-agement approach that focuses on both preven-tion and mitigation of the impacts of chemicalincidents. All high-hazard plants—regardless ofage—should be subject to risk assessment and berequired to prepare an emergency response plan.

Enhance preparedness

First responders should be well trained for han-dling chemical incidents and equipped with themandate and resources to contain pollutionreleases. The National Chemical RegistrationCenter and its regional offices should establish aunit, independent from enforcement divisions,to provide 24-hour technical support to theemergency services on the properties and appro-priate responses to specific chemical releasesfrom a safety and environmental perspective.

Establish an environmental disaster fundthrough the implementation of thepolluter-pays principle

An environmental disaster fund with sufficientrevenue to support such activities as informationmanagement, training, and clean-up for envi-ronmental incidents should be established. Fundscould be raised through an increase in the pollu-tion levy and/or the introduction of environ-mental taxes on toxic chemicals. In addition,increased fines for pollution accidents to coverthe cost of clean-up and compensation should beconsidered another source for the fund.

Establish a chemical managementinformation system

The central government should establish andmaintain comprehensive inventories of all chemi-cals and pollution sources containing information


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consistent with international standards. The func-tion and effectiveness of the two existing systemsdeveloped by SAWS and MEP separately shouldbe reviewed. Inventories should be consistent,comprehensive, and easily used in public emer-gency prevention and response. A comprehensivelabeling system for chemicals should be estab-lished and applied to all parts of the production,storage, and transportation process.

Strengthen monitoring and public information

In the event of an incident, local environmentand safety authorities should establish appropri-ate additional monitoring to assess the impacton the health and safety of the local communi-ties and the environment. Investigation findingsshould be reported to the central authorities,and a mechanism established to share lessonslearned and introduce new legally binding prac-tices and procedures if necessary. The publichas the right to be informed of the final investi-gation results.

ISSUES FOR THE FUTURE

While this report has addressed a number of crit-ically important issues relating to water resourcemanagement in China, much work remains tobe done. The various studies identified a num-ber of areas where further work is required.Some of these issues for the future—relating toagricultural water, climate change, and strategicassessment and economic analysis for river basinplans and programs—are highlighted below.

Water Efficiency, Food Security, and Rural Development

The case studies have revealed great variationsin the economic value of water by sector andby region, low economic efficiency of agri -cultural water use, and poor cost-effectiveness of underground water withdrawal in North

China. Although the general direction shouldbe to raise water-use efficiency by reducingdemand for water by the agricultural sector,progress is complicated by and associated withvarious issues involving the rights and well-being of the rural population, national foodsecurity, agricultural sector protection, andpoverty alleviation. The central issue is how toreduce rural poverty and secure the nation’sfood supply while at the same time improvingthe efficiency of water use. This issue will requirefurther study.

Climate Change Adaptation

Global warming caused by human activities canbe one of the biggest threats to the natural envi-ronment and human well-being. The scarcityand vulnerability of China’s water system can benegatively affected by climate change, and reme-dial and adaptation measures need to be taken toameliorate these effects. How to fully take intoaccount climate change impacts and mainstreamadaptation measures in the institutional and pol-icy reform of water resource management inChina is an issue for further investigation.

Ecological and Economic Studies of River Basins

Effective application of water managementmeasures—such as water pricing, water alloca-tion and water rights administration, ecologicalcompensation, and water quality managementin a river basin—all depend on good analysisand understanding of the ecosystems and theeconomic value of competing water uses, suchas agriculture, energy, municipal water supply,and flood control in the river basin. In manycases, the important analytical work remains to be done. Developing a sophisticated analy -tical system—using advanced economic, geo-graphic, and ecological tools—is required forsound policy making.


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Development Strategies, Policies,and Plans and Their Long-TermImpacts on Water Scarcity

China’s Environmental Impact AssessmentLaw, effective in 2003, required strategic envi-ronmental assessments (SEAs) for regional andsectoral development plans. These include landuse, water resource management, and waterpollution control plans for river basins. How-ever, such SEAs have rarely been carried outdue to the lack of knowledge, expertise, andcapacity of planning agencies and local envi-ronmental bureaus and research institutes. As aresult, the long-term impacts of these plans onwater scarcity conditions and the natural envi-ronment are in question. This situation has tobe changed.

CONCLUDING REMARKS

There is no doubt that China is facing a majorchallenge in managing its scarce water resourcesto sustain economic growth in the years ahead.This is a daunting task for the Chinese leader-ship, but past experience in China and in othercountries provides some lessons as to the wayahead. Of course, China is unique in many ways,and will have to adapt techniques and policiesdeveloped elsewhere to suit its own circum-stances. But there are grounds for optimism; theChinese, who have demonstrated immense inno -vative capacity in their successful program of eco-nomic reform, can and should take another boldmove in reforming the institutional and policyframework to make it become a world leader inwater resource management.


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BACKGROUND

For years, water shortages, water pollution, and flooding have constrainedgrowth and affected public health and welfare in many parts of China. Givencontinuing trends in economic and population growth, as well as the currentpattern of industrialization and urbanization, the pressures on the country’swater resources are bound to increase. The impact of growing waterdemand—combined with limited supplies and the deteriorating water qual-ity caused by widespread pollution—suggests that a severe water scarcity cri-sis is emerging if no decisive actions are taken soon.

China’s per capita natural freshwater resources amounted to 2,156 m3 in2007, and are expected to decline to 1,875 m3 as its population rises to a pro-jected peak of 1.5 billion by around 2033.1 In North China, the amount isalready much lower, at about 700 m3 per person, and the amount of exploitablewater is much smaller. The scarcity is greatest in the Hai River basin, with120 million inhabitants, including Beijing and Tianjin, which has only about300 m3 per person. Based on standard definitions, North China is already awater-scarce region, and China as a whole will soon join the group of water-stressed countries.2 Specifically, about 400 of China’s 660 cities are report-edly short of water; of those, 108 cities, including megacities like Beijing andTianjin, are facing serious water shortages.3

In addition to scarcity, China’s water resources are poorly managed. Theyare generally characterized by inefficient and outdated practices, unsustain-able groundwater depletion, excessive water pollution, and extensive degra-dation and destruction of aquatic ecosystems. In 2006, China’s total annualdischarge of municipal and industrial wastewater reached 53.7 billion tons,of which only 56 percent had some form of treatment.4 Although the treat-ment rate has steadily increased in recent years, there is still a huge amountof wastewater discharged directly to the environment without any treatment.Nonpoint pollution, mainly from fertilizer and pesticide runoff and livestock

Introduction

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y 1

waste, represents an increasing and essentiallyuncontrolled factor. As a result, water qualityremains a serious concern, especially in northernChina due to the shortage of water flows todilute pollution loads.

The costs of water scarcity and pollution arehigh. Water pollution poses a serious threat topublic health and causes major economic andenvironmental losses. A recent study (WorldBank 2007a) estimated the cost of water scarcityassociated with water pollution at 147 billionyuan, or about 1 percent of GDP, and the costof health-related impacts in rural areas at 1.9 per -cent of rural GDP in 2003. MEP estimated thecost of environmental degradation caused bywater pollution in 2004 at about 1.7 percent ofGDP. Surface water overexploitation has resultedin the drying up of lakes and wetlands, as well asinsufficient environmental flows, including out-flows to the seas. Groundwater overexploitationis leading to the annual lowering of water tablesand the eventual exhaustion of groundwaterreservoirs, as well as extensive subsidence in manymajor cities.

China’s leadership is aware of the worseningwater shortage, and is committed to transform-ing China into a water-saving society. This isexpressed in recent development plans, decrees,and circulars. For instance, the 11th Five-YearPlan (FYP) (2006–10) for National Social andEconomic Development sets the goal that waterconsumption for agricultural irrigation is toremain constant, and puts stress on water-savingtechnology innovation in water-intensive sectorsto reduce water consumption per unit of industry-added value by 30 percent. The State Council’sGuidelines on Deepening Reform of the Eco-nomic System (2005) specified that the govern-ment would address China’s water scarcity by(a) reforming resource pricing systems, (b) ex -panding the collection of user fees for waterresources, (c) strengthening the implementationand supervision of water tariffs and seweragecharges, (d) studying the establishment of anational system of water rights, (e) improving

the water exploitation permit system, (f ) explor-ing the possibility of establishing water markets,(g) piloting a compensation system for transferof water rights, and (h) gradually adopting mar-ket mechanisms for optimal allocation of waterresources.5 The Government of China (GoC)has been actively seeking technical assistancefrom the international community to strengthenits policy and institutional framework for waterresource management.

OBJECTIVES AND SCOPE

The objective of this report is to provide anoverview of China’s water scarcity situation,assess the policy and institutional requirementsfor addressing it, and recommend key areas forstrengthening and reform. The report synthe-sizes the main findings and recommendationsfrom analytical work and case studies preparedunder a World Bank-funded Analytical and Advi-sory Assistance (AAA) program entitled “Address-ing China’s Water Scarcity: From Analysis toAction.” Components of the AAA program aresummarized in Box 1.1. The target audience forthis synthesis report includes officials of relevantagencies, state leaders, interested professionals,and the general public.

The scope of water scarcity issues in Chinaencompasses both qualitative and quantitativeaspects. The qualitative aspects—protecting thesources of water supply—include environmen-tal and ecological services required to ensureadequate water for the protection of wetlands,lakes, and environmental flows; water pollu-tion management; and groundwater protection.The quantitative aspects—improving the effi-ciency of water use—include demand manage-ment measures (such as water pricing, permits,water rights, and trading); compensation for eco-logical conservation and services; social afford-ability; and improvements in water conservationand productivity.

Within this broad scope, the study focuseson several thematic areas that are strategically

I N T R O D U C T I O N

A D D R E S S I N G C H I N A ’ S W A T E R S C A R C I T Y2

important and feasible for China. These areas—identified by the research team based on a reviewof pressing issues and government priorities—include water institutions and governance, waterrights, the economic valuation of water, watersupply pricing and social affordability, water-shed ecological compensation, and water pollu-tion control and emergency prevention. Otherimportant areas, such as water use in agriculture,and water utilities’ regulation and performance,were omitted because they have been covered inprevious work. Some relevant studies conductedby the World Bank are described in Box 1.2.

Case studies and reviews of international expe-rience have been carried out around each themein order to develop policy recommendations basedon realities on the ground. The case studies coverthe economic valuation of water in the Hai Riverbasin, the Songhua River toxic chemical spill

incident, willingness-to-pay (WTP) and watertariff reform in Chongqing, water tariff reformand income impacts in Beijing, water rights in the Hai River basin, and the ecological com-pensation mechanism in Lijiang City of Yun-nan Province. To diagnose the problems of planimplementation, we evaluated water pollutioncontrol planning in the Huai River basin. A set of background papers on internationalexperience was also produced. A list of casestudies and reports is provided at the end ofthe report.

CONCEPTUAL FRAMEWORK AND APPROACH

The conceptual framework in Figure 1.1 iden-tifies the main water issues, water resourcemanagement components, and the interaction



To seek international assistance in strengthening water resources management, several Chinese min-istries requested the Bank’s analytical and advisory assistance, particularly in water policy and insti-tutional reforms and the sharing of international experience. In response to the request, the WorldBank launched an Analytical and Advisory Assistance (AAA) project—the China Water AAA—in fiscal2006.

The broad objective of the China Water AAA is to assist the Chinese government to develop, adopt,and implement policy and institutional reforms needed to more effectively address China’s water prob-lems. Building on a large number of existing and ongoing studies on water issues in China and on inter-national experience, the China Water AAA concentrates on helping the responsible agencies developand implement policy and institutional reforms needed to improve the sustainable management ofthe country’s water resources. The major tasks of the AAA were undertaken in three phases—diag-nostic evaluation, thematic studies, and synthesis of recommendations.

In light of the magnitude of water issues and the limited resources and time available, the AAAprogram did not intend to be a comprehensive study, but focused on selected areas where moreanalysis was needed to improve the understanding of policy and institutional issues, and to recom-mend specific actions to address them. In relation to the earlier studies supported by the Bank andothers, the main value added by this AAA program has been in (a) filling gaps in our understandingof strategically important water issues, and (b) engaging key government agencies, especially high-level policy makers and other stakeholders, to raise awareness of these issues and build a consensuson priority actions.

The AAA benefits from the participation and support of various Chinese and international institu-tions, including research institutes, universities, and civil society groups, and the U.K. Department ofInternational Development (DFID), which provided both technical and financial support.

B O X 1 . 1 The World Bank’s Analytical and Advisory Assistance Program—“AddressingChina’s Water Scarcity: From Analysis to Action”

between them, using a pressure-state-responseframework.

In this study, external economic and de -mographic conditions—such as population,economic growth, industrialization, andurbanization—are largely exogenous, and so isthe distribution of water resources, which is

largely determined by precipitation and runoffpatterns. For example, the supply of water isdetermined by existing rainfall patterns. Thusclimate change and its impacts, while admit-tedly human-induced, are treated as exogenousfor the purposes of this study. In addition,given the current state and economics of sea-



Water resource management in China has been the subject of considerable attention by interna-tional development institutions. This study, which elaborates on selected topics, complements sev-eral reports and publications issued by the World Bank in recent years.

Several of these reports have addressed strategic and policy issues related to environmentalmanagement and water resources management. For example, Clear Water, Blue Skies: China’sEnvironment in the New Century (World Bank 1997) estimated the costs of water pollution andthe benefits of an adequate water supply in terms of productivity and health and set out generalpolicies for sustainable use of water resources, with much emphasis on the polluter-pays principle.More recently a report entitled Cost of Pollution in China: Economic Estimates of Physical Dam-ages (World Bank 2007a) estimated environmental damage costs for air and water pollution at 5.8percent of GDP.

Much of the analytical and policy work done in the World Bank has focused on the allocation ofwater among competing water uses, particularly the institutional and economic means of address-ing this issue. The Agenda for Water Sector Strategy for North China (World Bank 2002b), a com-prehensive analytical study of water resource management, covered water scarcity, flooding waterfor agriculture, water pollution, groundwater, and water management institutions in the Huang-Huai-Hai River basins of the North China Plain, the dominant agricultural area of the country. Thereport outlined an action plan and provided an indicative assessment of investment needs.

China, Air, Land, and Water—Environmental Priorities for a New Millennium (World Bank 2001a)also dealt extensively with water resource management and water pollution. This study formed thebasis for the World Bank’s Water Resources Assistance Strategy for China (World Bank 2001b). Keyfindings stemming from this work included the importance of institutional reform, including thedevelopment and enforcement of detailed policies/regulations and management. Much emphasiswas given to improved multipurpose basin management, as well as water rights issues and economicincentives, such as pricing of irrigation and municipal water and enforcement of the polluter-paysprinciple. Such findings were reinforced in China Water Quality Management: Policy and Institu-tional Considerations (World Bank 2006a).

Alongside its China-specific policy analysis, the World Bank has continued to develop policy rec-ommendations on a worldwide basis, with considerable attention paid to the agriculture sector—the major water user in most countries. Comprehensive treatment of this topic is to be found in thereport Re-engaging in Agricultural Water Management: Challenges, Opportunities and Trade-offs(World Bank 2005b).

As in the case of agriculture, pricing and other strategic issues for urban water and sanitationhave traditionally been addressed in the context of individual projects, as well as in a growing num-ber of research and policy papers. Addressing China’s Growing Water Shortages and AssociatedSocial and Environment Consequences (Shalizi 2006) addresses the interface between property rightsand water pricing. The importance of cost recovery and other policy, regulatory, and institutionalissues for urban water utilities was also addressed in Stepping Up: Improving the Performance ofChina’s Urban Water Utilities (World Bank 2007b). The focus of this report is fairly narrow, since itdoes not fully consider the implications of increasing water scarcity or environmental costs for waterpricing, and in particular on how efficient pricing can be reconciled with the need to ensure ade-quate service for poor households.

B O X 1 . 2 Recent Water Resource Management Studies at the World Bank

INT

RO

DU

CT

ION

AD

DR

ES

SIN

G C

HIN

A’S

WA

TE

R S

CA

RC

ITY

5

Economic and demographic driving forces Economic growth, industrialization, urbanization, population growth

Exogenous factors

Natural endowment of water Surface/UndergroundSpatial/Temporal

LegalframeworkWater laws, acts,regulations, rules/codes,standards, etc.

InstitutionalframeworkStrategy,planning, waterrights allocation,governance,PPP,information disclosure, etc.

TechnicalsolutionsWater-saving, watertreatment, etc.

OrganizationGovernments, civil society, NGOs, WUAs, etc.

Economic PolicyinstrumentsWater tariffs, resources fee, rebates, living support, tradablepermits, etc.

Policy and institutional determinants

Behavior

Water demand activities

Water supplyactivities

Water conservation and pollution control

Water scarcity situation Pollution levelsWaterborne diseases and quality of lifeWater use efficiency Water reuse and recycling Ecosystems maintenance Ecological values Recreation valuesGroundwater recharge

Impacts

F I G U R E 1 . 1 Water Resource Management

Source: Authors.Note: PPP = public-private partnership.

water desalination and artificial rainmakingtechnologies, they can only be expected to playa minor role in enhancing China’s freshwaterresources. The demand for water is driven byeconomic and demographic forces that, for thepurposes of this study, are treated as exogenous.

Balancing the supply and demand for waterwill essentially depend on behavioral choices thatdetermine the efficiency of water use and theextent of pollution. In other words, technology,investment, and operational decisions made byfarmers, enterprises, and other water users andpolluters are based on a calculus that takes allcosts and benefits into account, to the extent thatthey (the economic actors) are aware of them andare given the correct incentives to do so.

Water resource management has policy, insti-tutional, and technical dimensions. Althoughtechnologies such as those for water-saving andpollution control are critical to water manage-ment, they are not highlighted in the analysis.Rather, this study focuses on the policy and insti-tutional framework for water resource manage-ment, which has a major influence on decisionsmade by water users and polluters. For example,the design of specific water and effluent pricingmechanisms can greatly influence the costs andbenefits of alternative water saving, treatment,recycling, and reuse technology choices and stim-ulate their adoption (or not), with attendantimpacts on future evolution of water-use effi-ciency and pollution control.

This study further identifies organizations, thelegal framework, policy instruments, and theinstitutional framework as four major elementsof water resource management. These are treatedas determinant variables in the analysis, since thegovernment can influence their design and opera-tion. Organizations include governmental bodies,civil society, grass-roots associations, and NGOs.The legal framework includes water laws, acts,regulations, rules, and standards. Policy instru-ments include economic incentives—such asprices, taxes, subsidies, and tradable permits—aswell as regulatory instruments. The institutional

framework covers a wide range of institutionalmeasures, from planning to governance.

Given this conceptual framework, the studyseeks to evaluate Chinese and international expe-rience with water resource management andwater pollution control in order to identify pol-icy and institutional models that have proveneffective in promoting the adoption of water con-servation and pollution reduction technologies.The research used a mix of methods, includingliterature reviews, qualitative and quantitativepolicy analyses, household surveys, field trips,and case studies. Surveys on water use and will-ingness to pay at the household level were conducted by research teams in case studies inChongqing City, the Huai River basin, the HaiRiver basin, and Lijiang City, Yunnan. Detailedpolicy analyses were conducted for each thematicarea, including evaluation of the implementationof water plans in representative regions.

The study has taken a cross-sectoral, multi-stakeholder approach through collaboration andpartnership with various government agencies,research institutes, and donor agencies. Some ofthe case studies and thematic research directlyinvolved World Bank teams responsible for lend-ing projects in Chongqing, Yunnan, and Shan-dong provinces, and supported the preparationand implementation of those projects. Outsidethe Bank, studies were done in partnership withrelevant central and local government agencies,top research Chinese institutes and universities,and NGOs. The study also built on synergieswith programs of other Chinese and inter -national groups and benefited from a strongpartnership with the DFID China Program andthe participation of international consulting ser-vice groups in Italy, Japan, and other countries.

OUTLINE OF THE REPORT

The report contains ten chapters. Following thisintroductory chapter, Chapter 2 reviews the waterscarcity situation in China, from water shortagesto water pollution and external driving forces.



Chapter 3 examines water resource managementin China, focusing on institutional and policyissues and possible areas of improvement. Chap-ters 4 to 9 then discuss selected areas of waterresource management and make policy recom-mendations. Chapter 4 discusses governance issues,with policy recommendations relating to legalframeworks, organizations, information disclo-sure, and public participation. Chapter 5 dis-cusses water rights administration and trading.Chapter 6 addresses water supply tariff reform,emphasizing the need to recover environmentaland depletion costs and to protect the poor.Chapter 7 promotes market-based ecologicalcompensation mechanisms in river basins byintroducing a new market-based approach ofpayments for ecosystem services. Chapters 8 and9 address water pollution control and the pre-vention of water pollution incidents, respectively.Chapter 10 contains concluding remarks.

Endnotes1. The per capita number for China in 2007 is calculated

based on data available from the 2007 Little Green Data

Book published by the World Bank. The per capitanumber for 2033 is calculated by dividing China’s totalfreshwater resources, which, is 2812.502 km3, accordingto the Little Green Data Book, by the projected popula-tion peak of 1.5 billion by 2033, which is available fromthe State Population Development Strategy Report,published by the National Population and Family Plan-ning Commission of China in 2007 and available athttp://www.chinapop.gov.cn/gxdd/t20070111_172058513.html.

2. UNDP, UNEP, the World Bank, and the World Re -sources Institute define water stress as annual water avail-ability of 2,000 m3/person or less, and water scarcity as1,000 m3/person or less. See Shalizi 2006.

3. See Chinese Academy of Hydraulic and HydropowerResearch 2004.

4. The wastewater discharge rate is reported in SEPA 2007.The treatment rate is an official figure in the report of the Implementation of the 2006 National Plan ofEconomic and Social Development submitted by the National Development and Reform Commission(NDRC) to the National People’s Congress (NPC) atthe 5th Plenary of the 10th NPC on March 5, 2007. Thetreatment rate may reflect the installed wastewater treat-ment capacity rather than the actual treatment, which islikely lower due to the lack of sewage networks andfunds for operation and maintenance in many cities.

5. Please see the State Council document at http://news.xinhuanet.com/newscenter/2005-04/17/content_2841603.htm.



This chapter provides an overview of water scarcity in China and its long-term implications for sustainable development. It first discusses China’s nat-ural endowment of water, and points to its uneven distribution in spatial andtemporal terms as an important contributing factor in the nation’s severewater scarcity, particularly in northern China. The next sections discuss theextent of water pollution, which exacerbates water scarcity, and the environ-mental, economic, and social impacts of water scarcity, which underminesthe long-term sustainability of development. The chapter then examines suchexternal factors as economic growth, industrialization, urbanization, and pop-ulation growth, which drive the increasing demand for water. While thesefactors are clearly subject to policy influence, they will be treated as exoge-nous for the purposes of this study.

SPATIAL AND TEMPORAL DISPARITIES

China’s total annual renewable water resources amount to about 2,812 km3,the sixth largest in the world. Its annual per capita freshwater resources,however—about 2,156 m3 in 2007—are among the lowest for a major coun-try.1 In 2005, China’s total consumption withdrawals were 563 km3. Surfacewater accounted for 81.2 percent of withdrawals, groundwater for 18.4 per-cent, and 0.4 percent came from other sources.2 While China as a whole is awater-stressed country, the severity of the problem is greatly worsened by theuneven distribution of the resource, both spatially and temporally.

Water availability in different parts of China varies greatly due to char-acteristics of its climate and topography (Figure 2.1). Overall, southernChina is much more water abundant than the northern part. This spatialdisparity does not match the distribution of China’s population, arableland, and productivity. For example, in 2000 southern China (the YangtzeRiver basin and areas to its south) accounted for 80.4 percent of thenation’s naturally available water resources, 53.5 percent of its population,

Water Scarcity in ChinaCurrent Situation

2

�


35.2 percent of its arable land, and 54.8 percentof its GDP. Northern China accounted for only19.6 percent of naturally available water resources,46.5 percent of the population, 64.8 percent ofthe arable land, and 45.2 percent of China’s GDP(Liu 2002).

In a few important basins, water scarcity iseven more serious than for North China as awhole (Table 2.1). In the Huang (Yellow)-Huai-Hai river basins (the so-called 3-H basins),34.7 percent of China’s population has accessto only 7.6 percent of China’s naturally avail-able water resources. The annual per capita levelof naturally available water re sources in the 3-H area ranges from 358 m3 in the Hai-Luanbasin to 750 m3 in the Huang basin, far belowthe “scarcity” level of 1,000 m3 as defined byinternational organizations.3 In the Hai Riverbasin, where Beijing and Tianjin are located,only 1.5 percent of China’s water resources

are available to support 10 percent of the totalpopulation and 11 percent of the total arableland.

The temporal pattern of precipitation furtherintensifies the uneven spatial distribution ofwater resources. With a strong monsoonal cli-mate, China is subject to highly variable rainfallthat contributes to frequent droughts and floods,often simultaneously in different regions. In theYangtze River basin, there has been a severe floodroughly every 10 years for the past 2,000 years.While precipitation generally declines from thesoutheastern coastline to the northwestern high-lands, annual precipitation varies greatly fromyear to year and from season to season. In theHai and Huai basins, for example, river flows fallto 70 percent of their averages one year in fourand to 50 percent one in twenty, and dry yearstend to come in succession, accentuating thewater problem (Berkoff 2005).

W A T E R S C A R C I T Y I N C H I N A : C U R R E N T S I T U A T I O N


BEIJING

0

0 100 200 300 miles

300 kilometers

< 500

500–1000

1000–1700

>1700

Water resources per capita (m3)

PROVINCE BOUNDARIESINTERNATIONAL BOUNDARIES

Source: The World Bank (2007a).

F I G U R E 2 . 1 Spatial Distribution of Annual per Capita Water Resources in China

by 2050, as compared to 2000. While the totalannual precipitation will increase to some extent,higher evaporation together with spatially unevendistribution of the precipitation will certainlyworsen the already serious water scarcity situation,especially in North China. For the 3-H basins,the current water shortage—about 30–40 km3

per year (NDRC et al. 2007)—is projected to riseto 56.5 km3 by 2050 unless effective measuresare taken to reduce demand and to augment sup-ply (World Bank 2002b).

WATER POLLUTION

The scarcity of water in China is aggravated byextensive pollution from industrial, domestic,and agricultural sources. Over the past threedecades, despite great efforts to control it, waterpollution has increased, spreading from inland

Climate change is also aggravating waterscarcity. Over the past 100 years, inter-regionaldifferences in precipitation have increased, withrainfall gradually declining in North China atrates of 20–40 mm/decade, and rising in SouthChina at rates of 20–60 mm/decade. Over thepast 20 years, main stream water flows havedeclined by 41 percent in the Hai River basin,15 percent in the Huang River basin, 15 percentin the Huai River basin, and 9 percent in theLiao River basin (NDRC et al. 2007). Accord-ing to the National Report on Assessment of Climate Change—which was jointly issued inDecember 2006 by six governmental institu-tions, including the Ministry of Science andTechnology and the Chinese Academy of Sci-ences—it is estimated that average nationwidetemperatures will increase by 1.3 to 2.1°C by2020, 1.5 to 2.8°C by 2030, and 2.3 to 3.3°C



T A B L E 2 . 1 Spatial Distribution of China’s Water Resources and Other Social Variables

(1) (3) (6)Mean Annual Total Annual (5) Annual per

Surface (2) Water (4) Arable Land Capita WaterRunoff Groundwater Resourcesa Population (million Resources

Basin (km3, %) (km3, %) (km3, %) (millions, %) hectares, %) (m3)

North 334.3 (12.3) 168.9 (20.3) 405.4 (14.4) 520.5 (44.4) 57.4 (59.5) 778.9Song-Liao 165.3 (6.1) 62.5 (7.5) 192.8 (6.9) 113.2 (9.6) 19.5 (20.2) 1703.2Hai-Luan 28.8 (1.1) 26.5 (3.2) 42.1 (1.5) 117.6 (10.0) 10.8 (11.2) 358.0Huai 74.1 (2.7) 39.3 (4.7) 96.1 (3.4) 190.5 (16.2) 14.7 (15.2) 504.5Huang 66.1 (2.4) 40.6 (4.9) 74.4 (2.6) 99.2 (8.4) 12.4 (12.9) 750.0

South 2260.8 (83.4) 591.7 (69.3) 2276.6 (80.9) 627.4 (53.5) 33.5 (34.8) 3628.6Yangtze 951.3 (35.1) 246.4 (29.7) 961.3 (34.2) 402.5 (34.3) 22.9 (23.8) 2388.3Pearl 468.5 (17.3) 111.6 (13.5) 470.8 (16.7) 141.5 (12.1) 6.5 (6.7) 3327.2Southeastern 255.7 (9.4) 61.3 (7.4) 259.2 (9.2) 65.1 (5.6) 2.4 (2.5) 3981.6Southwestern 585.3 (21.6) 154.4 (18.6) 585.3 (20.8) 18.3 (1.6) 1.7 (1.8) 31983.6Inland 116.4 (4.3) 86.2 (10.4) 130.4 (4.6) 24.7 (2.1) 5.4 (5.6) 5279.4

TOTAL 2711.5 (100) 828.8 (100) 2812.4 (100) 1172.6 (100) 96.4 (100) 2398.4

Sources: Columns (1–3) adapted from Ministry of Water Resources and Electric Power of China. 1997. “Use of Water Resources in China”(cited in UN Economic and Social Commission for Asia and the Pacific (ESCAP). 1997. “Study on Assessment of Water Resources of Mem-ber Countries and Demand by User Sectors: China—Water Resources and Their Use.” Bangkok: UN. Columns 4 and 5 are from NanjingInstitute for Water Resources and Hydrology (NIWA) and China Institute of Water Resources and Hydropower Research (CIWRHR). 1998.“Water Demand and Supply in China.” Beijing: China Water and Power Press.a. The sum of water resources from surface water and groundwater may exceed the total water resources by the amount of overlapbetween them, since surface water interacts with groundwater, with the river base flow formed by groundwater and part of ground-water recharge coming from percolation of surface water.

water bodies to inshore coastal areas, and fromsurface waters to groundwater resources. Totalwastewater discharges have steadily risen to53.7 billion tons in 2006, with COD dischargesand NH3-N discharges amounting to 14.28 mil-lion and 1.41 million tons, respectively (SEPA2007b). It was not until 2007 that the rising trendof water pollution discharges began to show a signof reverse, as total 2007 COD discharges werereported to be 3.14 percent less than in 2006.However, the water pollution situation is stillvery serious due to the high volume of untreatedwastewater discharged to the environment.

Following a decreasing trend during the periodfrom 1995 to 2000, industrial wastewater emis-sions increased annually during 2000–05 (Fig-ure 2.2). This increase is attributed to an increasein wastewater discharges from township and vil-lage industrial enterprises (TVIE) that offset adecrease in wastewater discharges from county andabove-county-owned enterprises.4 Although theproportion of total wastewater discharges thatmeet pollution emission standards is increasing,

wastewater from TVIEs is still largely dischargedwithout treatment.5 Industrial COD discharges,which decreased in 2001–04 due to an increasingshare of industrial wastewater that is treated (from85.2 percent in 2001 to 90.7 percent in 2004),also increased slightly in 2005 (Figure 2.3) (ChinaStatistical Yearbook 2006 ). However, with therapid growth of domestic and nonpoint pollu-tion discharges, the share of industrial waste-water in total water pollution has decreased. Asof 2005, only 11 percent of organic pollutants(biochemical oxygen demand [BOD]), 4 percentof total nitrogen (TN), and 2 percent of totalphosphorus (TP) pollution in China were attrib-utable to industrial wastewater discharges (WorldBank 2006a).

Domestic wastewater discharges have sur-passed industrial discharges since 1999, and havebecome the most important pollution source(Table 2.2). A major contributing factor is thatonly 56 percent of municipal sewage is treated insome form. With lagging growth in wastewatertreatment facilities, including sewerage, about



0

5

10

15

20

25

30

1994 1996 1998 2000 2002 2004 2006

Was

tew

ater

dis

char

ge

(to

ns,

bil

lio

ns)

Total County and above Township and village industrial enterprise

Source: China Statistical Yearbook (various years).

F I G U R E 2 . 2 Industrial Wastewater Discharge, 1995–2005



0

2

4

6

8

10

12

1994 1996 1998 2000 2002 2004 2006

CO

D d

isch

arg

e (t

on

s, m

illio

ns)

Total County and above Township and village industrial enterprise

Source: China Statistical Yearbook (various years).

F I G U R E 2 . 3 Industrial COD Discharge, 1995–2005

T A B L E 2 . 2 Wastewater and Pollutant Discharges, 2000–05

Chemical Oxygen Demand Ammonia NitrogenWastewater (tons, billions) (tons, thousands) (tons, thousands)

Year Total Industrial Domestic Total Industrial Domestic Total Industrial Domestic

2000 41.52 19.42 22.09 14450 7045 74052001 43.29 20.26 23.03 14048 6075 7973 1252 413 8392002 43.95 20.72 23.23 13669 5840 7829 1288 421 8672003 46.00 21.24 24.76 13336 5119 8217 1297 404 8932004 48.24 22.11 26.13 13392 5097 8295 1330 422 9082005 52.45 24.31 28.14 14141 5547 8594 1495 522 973

Source: NDRC et al. 2007.

20 billion m3 of untreated wastewater per year isdirectly discharged into water bodies. In 2005,domestic sources accounted for 52 percent ofBOD, 69 percent of TN, and 2 percent ofTP discharges.

Nonpoint pollution (NPP), primarily relatedto agricultural activities such as fertilizer and pes-ticide run-off from farmland and infiltration oflivestock waste, has long been out of control and isbecoming an increasingly important source. Over

the 1978–2004 period, fertilizer applicationsin China increased fivefold, and pig, sheep, and“other livestock” (including cattle, horses, don-keys, and camels) production increased by 54 per-cent, 86 percent, and 62 percent, respectively.These trends contributed greatly increased nutri-ent flows into water bodies, and accelerated theeutrophication of many of China’s lakes, such asDianchi, Lake Chao, and Lake Tai (World Bank2006a). By 2005, nonpoint pollution accounted

for an estimated 37 percent of BOD, 27 percentof TN, and 45 percent of TP discharges in China.6

Water pollution incidents represent a seri-ous threat for water resources. According to theChina Statistical Yearbook, there were 752 waterpollution–related incidents in 2004 and 693 in2005. These numbers are probably on the low sidebecause polluters and some local officials tend notto report environmental accidents. In recent years,some major water pollution incidents occurred,including the well-known Songhua River pollu-tion incident in November 2005, which inter-rupted drinking water supply to millions ofhouseholds. Other major recent examples includethe release of toxic smelting waste into the BeiRiver (in the Pearl River basin) in December 2005;the release of cadmium-containing wastewaterinto the Xiang River (in the Yangtze River basin);and a diesel-oil spill into the Huang (Yellow) Riverin January 2006. These incidents have badly dam-aged the already fragile water environment, con -taminated downstream drinking water supplies fortens of thousands of people, and severely threat-ened public health and the quality of life.

As a result of continuing pollution, thewater quality of most of China’s water bodieshas been extensively degraded. In 2006, of all745 monitored river sections, 40 percent metthe grades I–III surface water quality standard(that is, water that is safe for human consump-tion after treatment), 32 percent met gradesIV–V standards (that is, safe for industrial andirrigation use), and 28 percent failed to meetgrade V+ (that is, unsafe for any use). Of 27 major monitored lakes and reservoirs, only 29 percent met the grades I–III standard, 23 per-cent met grades IV–V standards, and 48 percentfailed to meet grade V+ (SEPA 2007b). Waterquality in China’s lakes and reservoirs is charac-terized by accelerated eutrophication as a resultof excessive nutrient loads from both point andnonpoint sources. Overall, 57.5 percent of the40 main freshwater lakes—including Lake Tai,Lake Chao, and Dianchi—have become eutro -phic and hyper trophic (Table 2.3).

Since the early 1990s, overall water quality inChina does not seem to have changed much, withincreases in the shares of both good quality andpoor quality river sections, and a decrease in theshare of medium quality sections (Figure 2.4).However, regional trends were quite different,with significant improvements in the South,except for some rivers (Figure 2.5, right), con-trasting with some deterioration in the North(Figure 2.5, left). At the river basin level, the per-centage of poor quality sections increased in allfive major northern rivers between 2000 and2004, while all rivers—except the Yangtze insouthern China—experienced increases in theproportion of water classified as good quality forthe same period (Figure 2.6).

In spite of these differences, water qualitydegradation is also a threat to water supply insouthern China, where many cities face a supplycrisis due to heavy pollution. Shanghai is a goodexample. Located downstream of the YangtzeRiver and the Lake Tai basin, Shanghai is seri-ously impacted by both upstream and local waterpollution. According to data from the local envi-ronmental protection bureau, only 1 percent ofits surface water meets the standard for drinkingwater (grades I–III), while the percentage of poorquality water (worse than grade V) is as high as68.6 percent. Zhejiang Province faces the sameproblem; that is, an abundance of water that isunusable rather than unavailable.

Groundwater is also polluted by wastewaterdischarges from industrial, municipal, and agri-cultural sources. In about 50 percent of allregions, shallow groundwater is polluted. Inabout 50 percent of the cities, groundwater issuffering from quite serious pollution.7

ENVIRONMENTAL AND SOCIALIMPACTS AND ECONOMIC LOSS

Water scarcity and extensive pollution entailsubstantial environmental and social impactsand economic losses, which threaten sustainabledevelopment.





T A B L E 2 . 3 Current Trophic Level of Lakes and Reservoirs in China

Water Quality Parameter

Total Phosphorous Total NitrogenLakes Year (mg/liter) (mg/liter) Trophic State

Five Big LakesPoyang 2000 0.102 0.862 Mesotrophic-eutrophicDongting 2001 0.336 0.89 EutrophicTai 2001 0.126 3.24 EutrophicHongze 2004 0.103 1.906 EutrophicChao 1999 0.193 2.96 Eutrophic

Urban LakesCibi (Dali) 2003 0.016 0.39 MesotrophicXi (Hangzhou) 2003 0.17 3.06 EutrophicDong (Wuhan) 2001 0.125 2.5 EutrophicXuanwu (Nanjing) 2003 0.478 3.5 EutrophicGantang (Jiujiang) 2003 0.24 1.73 EutrophicNan (Changchun) 2003 0.529 5.45 EutrophicLu (Guangzhou) 2003 0.22 3.04 EutrophicXi (Huizhou) 2003 0.124 0.83 EutrophicHaixihai (Dali) 2003 0.033 0.28 Mesotrophic

ReservoirMiyun 1990 0.018 0.115 MesotrophicDahuofang 1988–91 0.06 1.09 Mesotrophic-eutrophicYuqiao 1999 0.14 2.5 EutrophicGuanting 2000 0.047 2.92 EutrophicShanzai 2001 0.05 0.27 Mesotrophic-eutrophic

Source: Jin et al. 2005.

10

0

20

30

40

60

50

70

80

90

100

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Per

cen

t

All China

Grades I – II Grades III – IV Grades V – V+

Source: World Bank (2006a).Note: Grades I–III refer to water that is safe for human consumption after treatment; grades IV–V refer to water thatis safe for industrial and irrigation use; and grade V+ refers to water that is unsafe for any use.

F I G U R E 2 . 4 Trends in Water Quality at Monitored River Sections in China, 1991–2005



10

0

20

30

40

60

50

70

80

90

100

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Per

cen

t

North China

10

0

20

30

40

60

50

70

80

90

100

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

South China

Grades I – II Grades III – IV Grades V – V+Grades I – II Grades III – IV Grades V – V+

Source: World Bank (2006a). Note: Grades I–III refer to water that is safe for human consumption after treatment; grades IV–V refer to water that is safe for industrialand irrigation use; and grade V+ refers to water that is unsafe for any use.

F I G U R E 2 . 5 Trends in Water Quality Changes at Monitored River Sections in North and South China,1991–2005

SONGHUAJIANG

LIAO RIVER

HAI RIVER

HUANG RIVER

HUAI RIVER

SOUTHEAST

YANGZI RIVER

ZHUJIANG

NORTHWEST

SOUTHWEST

0

0 100 200 300 miles

300 kilometers

Surface water quality, 2000 and 2004

2000, Grades I–III2000, > Grade III2004, Grades I–III2004, > Grade III

RIVER BASIN BOUNDARIESPROVINCE BOUNDARIESINTERNATIONAL BOUNDARIES

Source: World Bank 2006a.

F I G U R E 2 . 6 Surface Water Quality, 2000 and 2004

Water scarcity is undermining the capacityof water bodies to fulfill their ecological func-tions. Due to excessive withdrawals, even aminimum of environmental and ecological flowscannot be ensured for some rivers in northernChina. For example, water withdrawal rates inthe Huang River can reach up to 90 percent indry years, with the river running dry beforereaching the sea (WRI 2001). In some years in the 1990s, water flows at the deltas of theHai and Huang (Yellow) rivers averaged about15 km3 less than the amount required to trans-port silt and to maintain estuarine and coastalenvironments (World Bank 2002b). The dura-tion of low flows in these rivers increased from40 days in the early 1990s to 200 days in 1997.In recent years, the situation has improvedbecause of relevant policy actions such as theRegulation on Water Volume Control for the

Huang River, which has been enforced sinceAugust 1, 2006.

Excessive pollution also results in ground -water depletion. As much as 24 km3 of waterbeyond rechargeable quantities is extracted fromthe ground, leading to a lowering of water tablesand eventual exhaustion of groundwater reser-voirs, as well as extensive subsidence in manycities. In northern China in 2005, 63.3 percentof water supply was from surface water, and36.3 percent (over one-third) from ground -water, equivalent to withdrawal rates of 47.1 per-cent and 53.5 percent, respectively (Table 2.4).In the Hai River basin, groundwater accountedfor 66.7 percent of water supply and was beingwithdrawn from the aquifer at a rate of 95.5 per-cent. To compensate for the deficit of surfacewater in meeting demand, northern China hasincreasingly relied on groundwater.



T A B L E 2 . 4 Water Supply and Renewable Water Resources in China, 2005

Average Annual Renewable Water Supply (km3, %) Water Resources (km3) Intensity of Water Use (%)

Ground- Ground- Ground-Basin Surface water Total Surface water Totala Surface water Total

North 157.6 (63.3) 90.4 (36.3) 249.1 (100) 334.3 168.9 405.4 47.1 53.5 61.4Song-Liao 30.4 (53.4) 26.4 (46.4) 56.9 (100) 165.3 62.5 192.8 18.4 42.2 29.5Hai-Luan 12.3 (32.3) 25.3 (66.7) 37.9 (100) 28.8 26.5 42.1 42.7 95.5 90.0Huang

(Yellow) 24.5 (64.2) 13.3 (34.9) 38.2 (100) 66.1 40.6 74.4 37.1 32.8 51.3Huai 38.5 (70.8) 15.8 (29.0) 54.4 (100) 74.1 39.3 96.1 52.0 40.2 56.6

South 299.6 (95.3) 13.5 (4.3) 314.3 (100) 2260.8 591.7 2276.6 13.3 2.3 13.8Yangtze 175.6 (95.3) 8.0 (4.3) 184.2 (100) 951.3 246.4 961.3 18.5 3.2 19.2Pearl 83.0 (95.0) 4.1 (4.7) 87.4 (100) 468.5 111.6 470.8 17.7 3.7 18.6Southeast 31.2 (96.0) 1.2 (3.6) 32.5 (100) 255.7 61.3 259.2 12.2 2.0 12.5Southwest 9.9 (96.9) 0.3 (2.9) 10.2 (100) 585.3 154.4 585.3 1.7 0.2 1.7Northwest 52.0 (84.3) 9.6 (15.5) 61.7 (100) 116.4 86.2 130.4 44.7 11.1 47.3

TOTAL 457.2 (81.2) 103.9 (18.4) 563.3 (100) 2711.5 828.8 2812.4 16.9 12.5 20.0

Sources: Water supply data is from CAS (2007) for year 2005. Data on average annual renewable water resources is from a comprehen-sive assessment of national water resources by the Nanjing Institute of Hydrology and Water Resources in 1995–96.a. Surface water and groundwater are interrelated, and therefore, the total amount of water resources may be smaller than the sum ofsurface water and groundwater.

Such excessive overexploitation of ground -water resources (Figure 2.7) has resulted in thelowering of water tables and the rapid depletion ofgroundwater reservoirs. For example, the annualsustainable supply of groundwater in the HaiRiver basin is estimated at about 17.3 km3, whilewithdrawals were 26.1 km3, which indicates anannual overextraction as high as 8.8 km3. As aresult, deep groundwater tables have dropped byup to 90 meters, and shallow groundwater tablesby up to 50 meters (World Bank 2002b). In Bei-jing, groundwater tables have dropped by 100 to300 meters (World Bank 2002b).

The depletion of groundwater resources is con-tributing to the drying up of lakes and wetlandsand an increase in groundwater salinity, whichoccurs when seawater intrudes or when declin-

ing groundwater resources are substituted bybrackish water that often lies between the shal-low and deep groundwater tables (Zhu 2006). Insome locations, intrusion of brackish water hasbeen monitored at a rate of 0.5 to 2 meters peryear for the past 20 years (Foster et al. 2004). Seawater intrusion has occurred in 72 locations alongcoastal provinces, covering an area of 142 km2

(World Bank 2002b).When groundwater is depleted, the aquifer is

compacted, causing the land above it to subside.Subsidence of up to several meters has beenobserved in cities like Beijing, Tianjin, Taiyuan,Shijiazhuang, and Shanghai, causing damageto buildings and bridges, and even the collapseof construction projects (Shalizi 2006). Directimpacts of subsidence include reduced capacity



BEIJING

0

0 100 200 300 miles

300 kilometers

0–300

300–600

600–1500

1500–3000

>3000

Groundwater depletion(m3, millions)


Source: Adapted from World Bank (2007a), which was originally from Ministry of Water Resources.

F I G U R E 2 . 7 Groundwater Depletion by Province (million m3)

for flood protection and waterlogging in urbanareas due to less effective drainage (World Bank2002b). The compaction of groundwater aquifersalso destroys their storage capacity, and with ittheir ability to serve as a strategic reserve for dryyears. In some areas, the destruction of aquifersis already worsening the impact of droughts anddesertification.

Water scarcity and water pollution have impor-tant social impacts. The most important relates tothe health risks resulting from polluted drinkingwater sources. According to a national survey,about 25 percent of over 1,000 source areas ofdrinking water nationwide do not meet thenational standard (Sheng 2005). In rural areas,about 300 million people rely on unsafe drinkingwater, of which 190 million drink water withunhealthy levels of hazardous materials, 63 millionwith high concentrations of fluorine, and 38 mil-lion with salty water (Sheng 2005). Figure 2.8shows polluted surface and groundwater suppliesfor domestic use. During 2000–03, 47 m3 of waterthat did not meet the Grade III standard (ofbeing safe for human consumption after treat-ment) were used for water supply, which wasclose to 10 percent of the average national

domestic water supply (World Bank 2007a).Some studies found significant correlationsbetween the level of coliform bacteria in drinkingwater and the incidence rates of diarrhea, andbetween the integrated water quality index(IWQI) and incidence rates of typhoid/para -typhoid and diarrhea for both men and women(Pan and Jiang 2004). The lack of access to pipedwater has been associated with a 26 percentincrease in diarrhea in children under five years ofage (Figure 2.9). As Figure 2.10 shows, the mor-tality rates for liver and stomach cancer in Chinaare well above the world average, while the mor-tality rates for liver, stomach, and bladder cancerwere highest in rural areas.

The social impacts of water pollution becomemost prominent during pollution emergencies.This is exemplified by the Songhua River inci-dent and the more recent water crisis in WuxiCity (Box 2.1).

Water scarcity and pollution have causedtremendous economic losses in China. The eco-nomic cost of the disease and deaths associatedwith the excessive incidence of diarrhea andcancer in rural China has been estimated, basedon 2003 data, at about 66.2 billion yuan, or



0

0 100 200 300 miles

300 kilometers

0–500500–15001500–30003000–4000>4000

Water supply not meetingstandard (m3, millions)


Source: Adapted from WB (2007a) with data from the Ministry of Water Resources.

F I G U R E 2 . 8 Polluted Water Supplies in China



Rural HH NTW by county0–3458

3459–7800

7801–13574

13575–21886

21887–41341

Incidence of diarrheaper capita, by province

0–72,061

72,062–208,769

208,770–393,469

393,470–633,312

633,313–893,222 Note: Counties with no shading arecategorized as “Urban” or “Urban Center”.

Source: World Bank (2007a).

F I G U R E 2 . 9 Rural Households with No Access to Piped Water and Diarrhea Incidence

Inci

den

ce p

er 1

00,0

00 p

erso

ns

Esophageal cancer

35

30

25

20

15

10

5

0Stomach cancer Liver cancer Bladder cancer

Major citiesMedium/small citiesRuralWorld average

Source: World Bank 2007a.

F I G U R E 2 . 1 0 Mortality Rate for Cancer Associated with Water Pollution (1/100,000) in China, 2003 (world Average in 2000)

about 0.49 percent of GDP. These costs areunder estimated, since they do not include manyhealth impacts associated with water pollution,such as those associated with chemicals knownto cause cancer but without sufficient data todetermine a dose-response relationship (WorldBank 2007a).

Another important cost results when waste-water (that is, water below Grade V standardsfor irrigation) is used to irrigate crops. About4.05 million hectares, or 7.4 percent of thenation’s irrigated lands, are irrigated with pol-luted water; two-thirds of this land are in north-ern China. This leads to reduced harvests, poorquality crops, and degraded quality soils. The eco-nomic loss attributed to these impacts has beenestimated at about 61.3 billion yuan, equivalentto about 0.46 percent of GDP in 2003.

Water pollution also has an important impacton fisheries. Fishery losses due to acute pollutionaccidents amounted to over 4.3 billion yuan in2003. While not insignificant (this figure isequivalent to 0.03 percent of GDP), these fig-ures greatly underestimate the total fishery lossdue to pollution, since chronic pollution costsare not included in the estimate and are likely tobe much higher (World Bank 2007a). There arealso major impacts on aquatic, coastal, andmarine ecosystems, which are not included inthe estimate.

In addition to direct impacts, pollution com-pounds the scarcity of water. This imposes sig-nificant costs on all productive sectors, especiallyagriculture. China depends on 55 million hectaresof irrigated lands for about 80 percent of totalgrain output. Of these, about 20 million hectaresare suffering from water deficiency, and an addi-tional 7 million hectares cannot be irrigated at all,largely because of a shortage of 25 km3 of pollutedwater that cannot be used. The economic cost ofwater held back from supply has been estimatedat 85.4 billion yuan, or about 0.64 percent ofGDP, based on a scarcity value of water from 2.1to 5.2 yuan/m3 (He and Chen 2005). The eco-nomic cost of groundwater depletion has beenestimated at 92.3 billion yuan, equivalent to0.69 percent of GDP, based on the scarcity valueof water (World Bank 2007a).

Overall, water scarcity is constraining thelong-term sustainability of development. Theabove estimates suggest that the external costof water already amounts to about 2.3 per -cent of China’s GDP, of which 1.3 percent isattributable to the scarcity of water, and 1 per-cent to the direct impacts of water pollution.These estimates only represent the tip of theiceberg. They do not include costs where dataare unavailable, such as the avoidance andtreatment costs in curred by individual house-holds and enterprises; the ecological impactsassociated with eutrophication and the dryingup of lakes, wetlands, and rivers; and theamenity loss of extensive pollution in most ofChina’s water bodies. Thus, the actual cost canbe much higher.

EXTERNAL DRIVING FORCES OF WATER PROBLEMS

While natural conditions are important, China’swater resource issues can be largely attributedto human-related activities. The increasinglyserious water problems are embedded in theprocess of development and transformation inChina over the past three decades. Such factors



Wuxi, a typical city in eastern China, has longrelied on Lake Tai as its source for water supply.Since the 1980s, rapid industrialization andurbanization have accelerated the eutrophica-tion process of Lake Tai, which historically hasbeen a major recipient of abundant agricul-tural fertilizer, pesticides, and livestock wastes.In May 2007, there was a sudden large-scalealgae bloom, resulting in an intolerable odorin the local public water supply. Approximately70 percent of local water supply became unus-able, severely affecting the water use of 2 mil-lion people.

B O X 2 . 1 Water Crisis in Wuxi in 2007

as economic growth, industrialization, urban-ization, and continuous population expansionconstitute the driving forces of China’s waterproblems.

Since the late 1970s, when China began itseconomic reform and opening-up, it has beenamong the fastest growing economies in theworld, with an average annual growth rate ofmore than 9 percent (China Statistical Yearbook2006 ). Its economy, however, remains largelybased on extensive use of natural resources. Partlybecause of China’s low water productivity—at$3.6/m3, lower than the average of middle-income ($4.8/m3) and high-income ($35.8/m3)countries (World Bank 2007d)—such rapid eco-nomic growth has led to a rapid increase in waterdemand. Rapid growth has also led to seriouspollution via the ineffective control of wastewaterdischarges, especially those from urban and agri-cultural sources.

China’s urban population accounted for44.9 percent of the total by the end of 2007,compared to 17.9 percent in 1978. Urbaniza-tion generally contributes to higher efficiencyof water use, but these increased efficienciesare only achieved if the urban public servicesinfrastructure, including water supply andwastewater treatment, is expanded in tandemwith demand. However, only 56 percent ofurban domestic wastewater was treated in 2006(NDRC 2007c), and 200 cities had no treat-ment at all (SEPA 2007c). Given such a lag inthe supply of urban wastewater sewerage andtreatment infrastructure, China’s increased urban-ization has increased the flow of untreatedwastewater discharges, with the attendant pol-lution impacts.

Another factor is the continuous growth ofpopulation. In spite of strict family planningpolicy measures implemented to control popu-lation growth since the mid-1970s, China’s pop-ulation increased from 962.59 million in 1978to more than 1.31 billion in 2006 (China Sta-tistical Yearbook 2007 ). Given the low water-use efficiency and lagging wastewater treatment

infrastructure, the growth in population directlycontributed to an increase in water demand andserious water pollution.

At the regional level, there is a widening gapbetween the eastern coast and western/inland(upper reaches of most rivers) areas of China,posing a challenge for water resources and waterquality management in river basins. In China,the wealthiest provinces and cities are all locatedalong the eastern coast, which are the lowerreaches of most rivers, while the upper reachestend to be in the poor provinces in the West.The economic gap between the western and east-ern regions has widened during the past 10 years.For instance, in 2006 the per capita GDP of east-ern China reached RMB 25,400 yuan, nearly2.5 times that in western China. The regional gapand inequality means that those less developedprovinces located in upper reaches have few finan-cial resources and incentives to invest in waterresources management and water pollution con-trol, which worsens the water situation in thelower reaches.

While debate over the sustainability of China’srapid growth continues, the momentum of thisgrowth—and its attendant consequences—is notlikely to slow down. The process of urbanizationwill also continue, with the share of urban popu-lation likely to reach 55 to 60 percent by 2020.The population itself will also keep growing andpeak at 1.5 billion around 2033. Driven by theseforces, under a business-as-usual scenario (i.e.,with a continuation of the existing water pricingregime), total water demand in China is projectedto increase from 563.3 km3 in 2005 to 653.5 km3

(a 16 percent increase) in 2030. The increaseis largely driven by industrial and municipaldemands, which will increase 42 km3 and 40 km3

on the level of 2000, respectively, while agricul-tural demand will decrease 10 km3. Compared tothe levels in 2000, this scenario suggests that by2030 water demand will increase by 6.7 percent inthe Hai River basin, 10 percent in the Huai Riverbasin, and 50 percent in Songhua Jiang basin(Table 2.5).8



WA

TE

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CA

RC

ITY

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HIN

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23

T A B L E 2 . 5 Projected Water Demand

Per Capita Demand

Total Demand (km3) (m3) 2000 2030

2000 2030 increase 2000 2030 Municipal Industry Agriculture Municipal Industry Agriculture

River Basins Songhuajiang 35.2 51.7 16.5 559 689 9 22 69 9 20 71Liao 19.6 22.7 3.1 356 355 13 18 69 20 25 55Hai 40.2 42.9 2.7 312 262 13 17 70 21 21 58Huang 43.7 48.1 4.4 397 364 7 14 79 13 19 68Huai 65.1 71.6 6.5 332 320 10 16 74 18 20 62Yangtze 193.9 223.9 30.0 454 451 10 29 61 15 33 52Southeast

Rivers 33.9 33.8 −0.1 471 367 12 26 62 20 34 46Pearl 79.2 81.0 1.8 492 405 13 20 67 20 29 51Southwest

Rivers 10.6 13.6 3.0 530 544 8 3 89 14 6 80Northwest

Rivers 59.8 64.2 4.4 2062 1646 2 3 95 4 3 93

Regions 6 NorthernRegions 263.6 301.2 37.6 453 432 8 14 78 13 17 70

4 Southern Regions 317.6 352.3 34.7 467 433 12 25 63 17 31 52

Nationwide 581.2 653.5 72.3 461 432 10 20 70 16 24 60

Shares by Sectors (%)

Endnotes1. See data from AQUASTAT, a global information system

on water and agriculture developed by FAO.2. Chinese Statistics Yearbook 2006. Beijing: China Statis-

tics Press.3. Including the UNEP, UNDP, World Bank, and the

World Resources Institute.4. China Environmental Yearbooks show TVIE wastewater

discharge only for the years 1997–2000, which tended tobe increasing.

5. China Environmental Yearbooks indicate an increas-ing rate of wastewater discharged by county and abovecounty-owned enterprises that meets the dischargestandard over the years 1995–2000. The wastewater

discharges from TVIEs, however, are likely to beexcluded from the trend even though no detailed datahave been reported in the statistics yearbooks since2001.

6. Zhou, Shengxian. 2006. “Speeding up Facilitating His-torical Transition and Creating a New Situation of Envi-ronment Protection.” A speech at the 2006 Meeting ofDirector-Generals of Local EPBs across China, April 18,2006.

7. See http://news.xinhuanet.com/newscenter/2004-03/22/content_1378785.htm.

8. China Sustainable Development Strategy Study Groupof the Chinese Academy of Sciences. 2007. China Sus-tainable Development Strategy Report 2007—Water: Gov-ernance and Innovation. Beijing: Science Press.



Water Resources Management in China

An Overview of Determinant Variables

3

�

This chapter reviews the system and practice of water resource managementin China. The first section points out technically viable and economically fea-sible water-saving and cleanup options available to address water scarcity, andhighlights the potential influence of institutional and policy determinants inimproving water resource management. The second section examines theGovernment of China’s commitments, major plans, and actions to addresswater scarcity. It then discusses the existing institutional issues and policy fail-ures in water management as causes of water scarcity in China, indicatingareas for improvement. These are the elements of the water management sys-tem whose design and operation the government can control to influencewater-related activities and behaviors. They are treated as determinant vari-ables for the purposes of this study.

TECHNICAL SOLUTIONS ARE AVAILABLE AND ECONOMICALLY FEASIBLE

While the emerging water crisis is serious, there are many technically and eco-nomically feasible options to address it by improving the productivity of wateruse and reducing pollution. China’s water productivity is low in comparisonwith other countries. That suggests a significant potential for China to reduceits water demand without slowing down its pace of development. The waterproductivity gap between China and other countries is largely due to differ-ences in the structure and efficiency of water consumption, and shouldimprove with the gradual evolution of the economy’s sectoral structure. Forexample, the agriculture sector, which accounted for 65 percent of freshwaterwithdrawals, saw its share of GDP decline from 25 percent in 1989 to 13 per-cent in 2005. Over the same period, industry increased its share of GDP from43 percent to 48 percent, and services from 32 percent to 40 percent, whileconsuming only 23.4 percent and 1.7 percent respectively of water with-drawals (MWR 2005).


Water productivity in agriculture is the lowestof all sectors. This is largely due to extensive wastein irrigation systems, as well as suboptimal alloca-tion among crops and between different parts ofthe same river basin. The extent to which wateris wasted is difficult to estimate with accuracy.One estimate is that due to the poor managementof irrigation canals, only 50 percent of waterfrom primary canals is actually delivered to fields(Xu 2001). The water that reaches the fields is notused efficiently by local irrigation managers andfarmers; it is estimated that 20 to 30 percent iswasted. Only about 40 percent of water with-drawals for agriculture are actually used by farm-ers on their crops (Wang et al. 2005).

Water productivity in industry is also low byinternational standards. China’s paper producers,for example, consume about 400 to 500 tons ofwater per ton of paper, compared to consumptionof less than 200 tons of water in OECD countries.The largest steel mills use about 60 percent morewater to produce a ton of steel than the combinedaverage of the United States, Japan, and Ger-many, while water consumption by smaller firmsis as much as five times higher than in those devel-oped countries. This may be due to differences inthe structure of production, as well as low levelsof water recycling. About 40 percent of indus-trial water is recycled, compared to 75 to 85 per-cent in developed countries. If China’s industrycould improve its water utilization efficiencyto that level, it could reduce its raw water con-sumption withdrawals by two-thirds (SEPA Pol-icy Research Center 2006).

China’s urban water utility distribution net-work losses are among the highest in the world,averaging around 50 to 75 m3/day per km of net-work. This is twice the leakage rate in Brazil andRussia, and more than ten times the rate in theUnited Kingdom. Among the lowest performingutilities, average leakage rates are around 150 m3/day/km. Many pipelines are old and need reha-bilitation, and many newer pipelines built prior to1990 were constructed with poor quality materi-als and substandard construction methods. A

major underlying cause has been the utilities’ lim-ited ability to support the maintenance and reha-bilitation of these pipelines (World Bank 2007b).The leaks account for about 18 percent of totalurban water supplies on average, or about 1.5 per-cent of China’s total water withdrawals.

Finally, the cleanup of pollution will substan-tially contribute to addressing the scarcity ofwater. As mentioned in Chapter 2, approximately25 km3 of polluted water is held back from con-sumption, contributing to unmet demand andgroundwater depletion. As much as 47 km3 ofwater that does meet quality standards is never-theless supplied to households, industry, andagriculture, with the attendant costs. A further24 km3 of water beyond rechargeable quantities isextracted from the ground and causes ground-water depletion. Altogether, the cleanup ofpollution could make nearly 100 km3/year ofadditional surface water available for consump-tion or environmental uses, equivalent to 18 per-cent of China’s total freshwater withdrawals(World Bank 2007a).

The expanded use of water savings andcleanup options is economically feasible, espe-cially in water-scarce North China. A recent studyestimated the scarcity value of water to range from2.1 to 5.2 yuan/m3 (He and Chen 2005). Thevalue differs between river basins, with the high-est values obtained in the Yellow, Huai, and Haibasins, where water is scarcest. An ongoing studyof the Hai basin has found that the economicvalue of water ranges from 1.0 yuan/m3 in paddyirrigation to 12.3 yuan/m3 in vegetable fieldsand 21.3 yuan/m3 in manufacturing.

For China as a whole, the scarcity value ofwater is determined by the incremental cost ofadditional supplies. For coastal areas such as theHai basin, including Tianjin and Beijing, a ceil-ing on the scarcity value of water is provided bythe cost of producing desalinated water, whichhas fallen dramatically in the past two decades.Recently built large-scale plants in many coun-tries produce freshwater for $0.45 to $0.50/m3

(equivalent to 3.4 to 3.8 yuan/m3) using reverse

W A T E R R E S O U R C E S M A N A G E M E N T I N C H I N A : A N O V E R V I E W O F D E T E R M I N A N T V A R I A B L E S


osmosis technology (U.S. National ResearchCoun cil 2004). China has a history of desali -nation projects dating back to 1958. More than20 seawater desalination plants are planned or inoperation, with a cumulative capacity of 30,000m3/day and a production cost of 4–7 yuan/m3.1

Another indicator of the scarcity value of water isthe unit cost of the South-North Water TransferProject, which is about 7–8 yuan/m3.2

Overall, a wide range of water-saving and pol-lution abatement technologies is available andeconomically feasible for China, and some havealready been adopted to a limited extent. But therate of adoption has been insufficient to balancethe supply and demand of water and effectivelyaddress the water quality issues that have con-tributed to the emergence of the water crisis. Thecreation of an enabling environment, includinginstitutional and policy reforms that will acceler-ate the adoption of these technical solutions,should lie at the heart of any strategy to addressChina’s water scarcity.

GOVERNMENT COMMITMENTS,PLANS, AND IMPLEMENTATION

China’s leadership is well aware of the severity ofits water problems, and has committed to thecreation of a water-saving society. The impor-tance of water resources management has beenrecognized and is considered a policy priority inaction plans of the Chinese government. Forexample, the 9th Five-Year Plan (FYP) (1996–2000) for National Social and Economic Devel-opment set sustainability as the guiding principlefor socioeconomic development, and put stresson strengthening water resource development(SCCG 1996). In the aftermath of the 9th FYP,the government developed a medium- and long-term national plan to balance water supply anddemand (NIWRH and CIWRHR 1998). Basedon a number of studies dedicated to waterresources management, the MWR (1998) pub-lished China Agenda 21. This was followed by aseries of action plans for the management of river

basins and lakes, including the Yangtze River(1998), Huai River (1998), Huang River (1998),Hai-Luan River (1998), Song-Liao River (1998),Pearl River (1998), and Lake Tai (1998).

The 10th FYP (2001–05) highlighted againthe importance of improving water resourcesmanagement in achieving sustainable social andeconomic development (SCCG 2001). It identi-fied the actions needed, including establishing arational water resource management system, set-ting up rational pricing mechanism, adoptingwater conservation technologies and measures,facilitating the development of water efficientindustries, strengthening water pollution preven-tion and control, and raising the public awarenessof water conservation.

The 11th FYP (2006–10) sets a number ofpolicy goals and priorities for water resourcesmanagement in line with the guiding principleof “scientific development” and the general goalof achieving a “harmonious society.” The 11thFYP stresses the need for improving water re -sources management by adopting a more unifiedor better coordinated management pattern, shift -ing from supply-side to demand-side manage-ment, integrating river basin management withregional management, and establishing a pre-liminary system of water rights trading.

According to the 11th FYP, the total watercon sumption for agricultural irrigation is toremain constant, with the effective water-usecoefficient expected to reach 0.5. For industrialsectors, especially water-intensive industries suchas power plants, mining, and steel, the focus willbe on development and innovation of water-saving technologies. The mandate target is toreduce water consumption per unit of industry-added value by 30 percent. For the urban sector,the focus will be on improving water-saving mea-sures, including mandatory use of water-savingappliances; enhancing water recycling and reuse;and strengthening construction of water-savinginfrastructure in public buildings and residentialhouses. Priorities set in the 11th FYP includewater pollution control in major river basins



and regions such as the “three major rivers” and“three major lakes”; protecting the sources ofdrinking water supply; and regulating pollutiondischarge into major rivers and lakes. The planalso promotes construction of municipal sewagetreatment facilities and generalization of waste-water charges, with a target of raising the waste-water treatment rate to 70 percent by 2010.

Based on the principles and goals set by the11th FYP, the Chinese government developed the11th Five-Year Plan of National Water ResourcesDevelopment (FYPNWRD), setting specific ob -jectives with action plans and measures to supportthem (Box 3.1).

In 2002, the Chinese government amended theWater Law passed in 1988 to establish a legal foun-dation for integrated water resource managementand demand management. The amended 2002Water Law enshrines the principles that everybodyshould have access to safe water, and that waterconservation and protection are a priority. It

focuses on five areas of water resource manage-ment: (1) water allocation; (2) water rights andwater withdrawal permits; (3) river basin manage-ment; (4) water use efficiency and conservation;and (5) protecting water resources from pollution.

As a response to increasingly severe water pol-lution, China amended its Water Pollution Pre-vention and Control Law, which was passed in1984 and amended in 1996. Adopted by theStanding Committee of the NPC on February28, 2008, the newly amended version providesmore detailed measures for preventing and con-trolling water pollution from various sources,makes clearer specifications on the responsibili-ties of different stakeholders, and strengthens thelegal liabilities for water pollution.

These plans and laws embrace efficiency,equity, and sustainability as universally acceptedprinciples for water resources management. TheChinese government also strengthens such prin-ciples as (a) balancing between water resource uti-



B O X 3 . 1 China’s 11th FYP for Water Resources Development

Based on the 11th FYP, China developed the 11th FYP of National Water Resources Development toprovide specific guidance on water resources development and management.

The 11th FYP of National Water Resources Development emphasizes that water is an importantnational strategic resource that is becoming increasingly scarce. The sustainable use of waterresources to support sustainable social and economic development will be an important mission ofthe government for the 11th FYP period.

The plan summarizes achievements in water resource development and reform during the 10thFYP period and lays out guiding principles and a vision for the reform of water resources develop-ment and management. It promotes actions in the following fields: (a) improving water resourcedevelopment; (b) strengthening construction and management of water projects; (c) increasinginvestment; (d) deepening reforms; (e) improving management of water resources within the legalframework; (f) enhancing the capacity of disaster prevention and response; and (g) protecting andsaving water resources.

The plan sets specific objectives with action plans for water resource development and manage-ment and reform. In regard to water resource development, it focuses on the construction of waterworks and technological innovation for securing water supply and drinking water safety, enhancingflood control and disaster mitigation, and improving water saving and conservation. In regard towater resource management, it proposes such actions as reform of the management system, estab-lishing a water rights trading and administration system, introducing quantity control and quotamanagement, shifting to integrated river basin management, setting up mechanisms for waterfinancing, strengthening water conservation in rural areas, and improving water pricing. It also listsmajor measures to support its implementation, including setting up financial mechanisms, definingauthorities and responsibilities of government institutions, improving accountability, conductingresearch and staff training, and enhancing public participation in water resource management.

lization and conservation; (b) planning as a wholefor and balancing between various uses anddemands of various users; (c) integrating increas-ing sources of water supply and saving water,with water saving as the priority; (d) put ting pol-lution control first; and (e) integrating basin-based water management with administrativeboundary-based water management.

These plans reflect the strong commitment ofthe Chinese government to address the nation’swater problems, prevent the emergence of a watercrisis, and provide guidelines for policy makingat both the central and local levels. However,these plans are not always fully implemented, andnot all the planned objectives can be achieved.For example, since the mid-1990s, the Chinesegovernment has pledged to carry out large-scalewater pollution prevention and control in the keypolluted basins of three rivers and three lakesover two successive five-year periods. However,

by the end of the 10th Five-Year Plan for Envi-ronmental Protection (FYPEP), the objectives ofwater pollution control were not achieved, inspite of substantial investment (Table 3.1). Arecent case study of the Huai River basin, themost heavily polluted in China, identifies a fewreasons why the extensive water pollution pre-vention and control programs of the 9th and10th FYP periods have not achieved their objec-tives of reducing major pollutants such as COD(Box 3.2; see also Box 8.1 in Chapter 8).

EXCESSIVE FRAGMENTATION OFTHE WATER MANAGEMENT SYSTEM

Despite the recent trend of combining variouswater-related agencies into a more unified waterbureau in some city governments and convertinggovernment-owned water utilities into corpora-tions, China’s water resource management system



T A B L E 3 . 1 Performance in Meeting the 10th FYPEP Targets for Water Pollution Control

Chemical Oxygen Demand Ammonia Nitrogen(tons, million) (tons, thousands)

Sector/Region 2000 Base 2005 Target 2004 Actual 2000 Base 2005 Target 2004 Actual

Total 14.45 13.00 13.39 18.3 16.5 13.3Industry 7.05 6.47 5.10 7.8 7.1 04.2Domestic 7.40 6.53 8.30 10.6 9.4 9.1RiversHuai 1.06 0.64 0.99 1.5 1.1 1.2Hai 1.58 1.06 1.24 2.6 2.0 1.3Liao 0.58 0.33 0.47 0.7 0.5 0.5LakesTai 0.49 0.38 0.44 130.0a 99.1a 42.0a

Chao 0.06 0.06 0.07 12.3a 11.4a 8.0a

Dianchi 0.04 0.03 0.03 10.9a 8.8a 2.0a

South-north Water Transfer 0.97 0.55 0.49 1.4 0.7 0.5

Three Gorges Reservoir 1.35 1.03 1.01 1.1 0.8 0.8

Bohai Sea 1.14 1.03 2.09 1.6 1.3 0.1Beijing 0.19 0.13 0.13 0.4 0.3 0.2

Source: OECD (2007).a. Total nitrogen is in ten thousand tons.

is characterized by extensive vertical and horizontalfragmentation. Horizontally, at every level of gov-ernment several institutions are involved in watermanagement. At the central level, the NPC andthe State Council play an overarching role throughenactment of laws/regulations and supervisingtheir implementation and coordination. In addi-tion, a dozen ministries/authorities are involved invarious ways in water management: the Ministryof Water Resources (MWR), Ministry of Envi-ronmental Protection, State Oceanic Administra-tion, Ministry of Housing and Urban and RuralConstruction (MHURC), Ministry of Finance,Ministry of Agriculture (MOA), Ministry ofLand and Resource, Ministry of Transportation(MOT), the State Forestry Ad ministration, andNational Development and Re form Commission(NDRC) (Figure 3.1).3 A common metaphor todescribe the current system is that “nine dragons

manage the water.” Within this system, there areoverlaps and conflicts in responsibilities, as theboundaries be tween institutional jurisdictionsare not always clear. This unwieldy system hasincreased the administrative cost for coordinationamong different institutions and affected the effec-tiveness of water management.

For example, water quality and quantity man-agement are separated from each other and putunder MEP and MWR; that is, MWR is respon-sible for water allocation planning and water rightsadministration, whereas MEP is responsible forwater pollution prevention and control. As a result,the planning process for basin-wide water quantityand quality management has mainly proceeded on two separate tracks, under the supervision ofMWR and MEP, with the actual implementationin the hands of the local governments. This two-track system is replicated at the local (province,



B O X 3 . 2 Case Study: Evaluating the Implementation of the Water Pollution Preventionand Control Plans for the Huai River Basin

The Huai River basin (HRB) is located between the Yangtze River basin and Yellow River basin, cov-ering an area of 270,000 km2 in Henan, Anhui, Jiangsu, and Shandong provinces. It is composed oftwo water systems, the Huai River to the south of the old Yellow River, with a catchments area of190,000 km2, and the Yishusi River to the north, with a catchments area of 80,000 km2. The HRB’spopulation was estimated at 168 million in 2003, accounting for 13 percent of the nation’s total. ItsGDP has increased from 421.48 billion yuan in 1994 to 1.05 trillion yuan in 2003. The urban popula-tion share increased from 13.02 percent in 1990 to 20.22 percent in 2003.

Since the end of the 1970s, the basin has witnessed booming growth in township and villageenterprises, including paper production, alcohol distilleries, and food processing plants, which arehighly water intensive and polluting. Since the introduction of large-scale pollution control in theHuai River in 1993, township industrial enterprises and others have grown by 1.5 times, and indus-trial output 14.5 times, over the 1978 levels. Enterprises, especially low-tech agro processing plants,grew rapidly. These small enterprises not only further aggravated the shortage of water resourcesin the basin, but also increased pressure on the environment, leading to frequent pollution incidents.

To address water pollution in the HRB, a series of Water Pollution Prevention and Control Plans(WPPCP) were made at the basin and provincial, city, and county levels by central authorities, localenvironmental protection bureaus (EPBs), and planning agencies.

Despite the great efforts to prevent and control water pollution, the planned goals for total pol-lutant discharge control and water quality have not been achieved, and the planned investment andtreatment projects have not been fully implemented. There is still a long way to go to achieve theobjective of controlling water pollution and improving water quality in the basin. The failure can beattributed to insufficient consideration of the complexity and difficulty of water quality improve-ments in formulating the plans; incomplete and even distorted information for pollution controlplanning; lack of monitoring systems to evaluate implementation of plans; policy failures in supportof implementation of plans; and fragmented institutional systems for water resources management.

Source: Ma 2006a.



F I G U R E 3 . 1 Ministries and Authorities Involved in Water Resource Management

Leadagency

Ministry of WaterResources

Otherrelevantagencies

Wat

er R

eso

urc

e M

anag

emen

t

Ministry ofEnvironmental

Protection

Ministry ofHousing and Urban

and RuralConstruction

Ministry ofAgriculture

Ministry of Landand Resources

State ForestAdministration

Ministry ofTransportation

NationalDevelopment and

ReformCommission.

Water as a resource, land use planning

Forests for conserving water sources

Ship transportation water pollution control

Ministry of Finance

National People’s Congress

The State Council

Legislation, law enforcement, and supervision

State OceanicAdministration

Integrated water resource management, water resource protection planning, water function zoning, monitoring water quantity and quality in rivers and lakes; issues water resource extraction permits, proposes water pricing policy

Water pollution laws, regulations/standards, supervise/enforce, water environmental function zoning, initiates WPM plans in key rivers and lakes, monitors water quality

Urban water supply, urban wastewater treatment

Rural and agricultural water use and agricultural nonpoint pollution

Manages sea area use, protects marine environment

Pollution levy policy, wastewater treatment pricing policy, water pricing policy, industrial policies that affect wastewater discharge and its treatment

Pollution levy proceeds management, manages wastewater treatment charges and water re-source fee policy, State Office of Comprehen-sive Agricultural Development

Implementation regulation, administrative regulation and order, lead, and coordination

Source: Authors.

prefecture, county) level. Water resource bureausat the provincial level and water affairs bureaus(WAB) at the muni cipal level, which are overseenby MWR and MHURC at the central level, areresponsible for the administration of water rights,the planning and operation of water utilities, andthe protection of water bodies on the basis of waterfunction zones. Environmental protection bureaus(EPBs) overseen by MEP are responsible for issu-ing pollution permits, controlling pollution, andthe protection of water bodies on the basis of envi-ronmental water zones.

Even the responsibility for water pollution pre-vention and control is broken down and put underdifferent institutions. While MEP is responsiblefor prevention and control of pollution fromindustrial and municipal sources, MOA is respon-sible for nonpoint agricultural pollution controland MOT for ship transportation water pollutioncontrol. Consequently, for any given water bodythat receives pollution from various sources, themanagement of water quality would involve theseinstitutions as well as MWR, because water qual-ity is associated with water quantity: more watercan create greater capacity to dilute more pollu-tants. That increases the difficulty and adminis-trative costs in water quality management.

In addition, these institutions do not cooper-ate and coordinate with each other very well. For

example, both MWR and MEP monitor the waterquality of major rivers, but each has its ownmonitoring stations and do not share its respec-tive database on water quality information. AsFigure 3.2 shows, MEP’s and MWR’s waterquality data for the Huai River over the periodof 1998–2004 are different.

Vertically, the water management system isalso fragmented. The existing regime of waterresource management is mainly based on admin-istrative boundaries of different levels of govern-ment rather than at the river basin level. Each levelof government has its own focal points and pri -orities. This makes the management of trans-boundary rivers difficult. Sector and basin-wideobjectives, such as abating pollution, balancingupstream and downstream needs, and protectingaquatic ecosystems, tend to have relatively lowpriority among local authorities, who have anincentive to focus local resources on meeting localneeds. For example, the benefits from pollutionabatement and water savings in one province willbe felt farther downstream. However, the major-ity of funding for pollution control and water-saving investments must come from local budgets(user fees or loans) with only a small share con-tributed by the central government.

China has established river basin managementcommissions (RBMCs) for its seven large river/



Sources: China Statistical Yearbook (various years), MWR Statistical Yearbook (various years).Note: Grades I–III refer to water that is safe for human consumption after treatment; grades IV–V refer to water thatis safe for industrial and irrigation use; and grade V+ refers to water that is unsafe for any use.

F I G U R E 3 . 2 MEP and MWR Water Quality Data for Huai River, 1998–2004

0

20

40

60

80

100

1998SEPA MWR SEPA MWR

1999SEPA MWR

2000SEPA MWR

2001SEPA MWR

2002SEPA MWR

2003SEPA MWR

2004

Grade I–II Grade III–IV Grade V–V+

lake basins (six river basin management com-missions and the Lake Tai Basin ManagementAgency) as subordinate organizations of theMWR. These organizations have limited power.They are responsible for preparing basin-widewater allocation plans and providing technicaldirection and guidance to local governmentswithin the basin. Regarding water quality man-agement, RBMCs only have the authority tomonitor water quality, but no authority over pol-lution control at the source. For instance, the HaiRiver Basin Management Commission is respon-sible for inter-provincial water allocation andflood control, while the responsibility for func-

tional control in most instances rests with theprovincial, prefecture, and county governmentswithin the river basin. However, these RBMCshave no representatives from the affected pro -vinces and municipalities. As a result, it is dif-ficult for them, as subordinate institutions ofMWR, to coordinate with related provinces/municipalities and other stakeholders.

Given the nature of water resource manage-ment, a more integrated system would be moreeffective. Some developed countries like Franceand the United Kingdom are good examples inthis regard (Box 3.3). The Chinese government isaware of the weaknesses of the existing fragmented



B O X 3 . 3 River Basin Agencies in France

In the early 1960s, several major French rivers had been declared “dead.” Levels of pollution fromindustry and agriculture were dangerously high. Native fish had disappeared, plant life was dying,and the water was unsafe for swimming. Today, the rivers and their surroundings have been reha-bilitated. This dramatic change began with the recognition in 1964 of six river basins as the nat-ural units for water resource management in France, and the creation of six river basin agenciesto manage them accordingly. How was this done?

The six river basin agencies were established to implement basin-wide sustainable and coherentwater management systems, with targets and standards defined by national laws and regulations to

� ensure the security of water supplies� protect the ecological resources of the river environment� improve the efficiency of the municipal water supply and wastewater treatment

The main tools included consensual agreements among all stakeholders and technical advice andfinancial support for water “owners”—mainly municipalities, industries, and farmers. The neces-sary financial resources came from water pricing and the enforcement of the consumer-pays prin-ciple for quantitative management and the polluter-pays principle for pollution control.

The water resource management plan and a master development plan were drawn up for eachfive-year period. The plans were proposed by a River Basin Committee (“Water Parliament”), whichincluded all stakeholders. It was complemented by smaller plans, drawn up by local water commit-tees at each subbasin level.

An important aspect was the introduction of a system of volume-based water use and effluentcharges that fully reflected the treatment costs of specific pollutants (suspended solids, oxygendemand, nitrogen, phosphorus, soluble salts, hydrocarbons, and toxic metals) in each basin’s ownwastewater treatment plants. Revenues were exclusively used to fund investment and operatingcosts of the treatment facilities and to provide financial incentives (below-market credits) for pol-lution abatement by industrial plants.

Since the program started, more than 500 new wastewater treatment plants have been built,increasing the previous municipal treatment efficiency by about 20 percent for the control of organic pollution and by more than 50 percent for the nutrients. The treatment of industrial discharges has increased by more than 30 percent. As a result, reports show a continuous improvement in thequality of rivers. The one exception is the continuing high level of nitrogen, more than 66 percent ofwhich comes from nonpoint sources.

Sources: UNESCO (2003) and http://www.lesagencesdeleau.fr/.

system and is planning to initiate reforms to shiftfrom fragmented management to integrated man-agement. In his speech at the 17th National Con-gress of the CPC in October 2007, China’sPresident Hu Jintao promoted institutional re -form toward more integrated institutions. In thenew round of governmental restructuring ofthe State Council initiated in March 2008, someministries/agencies, such as Ministry of Personnel,Ministry of Labor and Social Security, were inte-grated. Therefore, a more integrated water man-agement system is expected to be set up in the nextfew years.

POLICY FAILURES IN WATER MANAGEMENT

The most significant policy failures in China’swater management include an underdevelopedsystem of water rights administration; an exces-sive focus on supply rather than demand man-agement; an excessive reliance on administrativemeasures rather than market-based instruments;insufficient financing for pollution control; andlow levels of pollution charges.

An Underdeveloped System of WaterRights Administration

A sound system of water rights administrationbased on clearly defined and tradable water rightsis a prerequisite for more effective water resourcesmanagement through market mechanisms. Dur-ing the long period of the planned economy,there was no definition of water rights in China.It was only in the 1988 Water Law that legal stip-ulations were imposed on the ownership of waterresources. Since 2000, China has formulated aseries of laws/regulations and policy guidelineson water rights administration, including theamended Water Law in 2002 and MWR’s 2005Framework for Water Rights System Develop-ment. Based on these laws/regulations and policyguidelines, China has established a preliminarysystem framework of water rights administration

covering water allocation, water withdrawal, andwater rights transfer. There are also pilots andexperiments in water rights administration at thelocal, regional, and river-basin levels.

The system of water rights administration inChina is far from mature. First, the initial rightsof water ownership are not very clearly defined.According to the 2002 Water Law, all waterresources (except those in ponds and reservoirsbelonging to rural collectives) are owned by thestate, and the State Council exercises the right ofownership on behalf of the state. In reality, theState Council has delegated water ownershiprights to local governments under the super -vision of MWR. MWR supervises water alloca-tions through the RBMCs, which only have theresponsibility to formulate water-use plans andallocate water for major cross-provincial rivers.For water bodies within provinces, municipali-ties, or counties, water is subject to allocation byadministrative authorities of the relevant provin-cial, municipal, or county governments.

Second, under the current system, there is nolink between the amount of water authorized foruse and an overall water resources allocation planbased on water balance analyses at the river-basinlevel. While basin-wide water allocation plansare prepared by the RBMCs, water rights at theuser level are administered by local governments,which are not represented in the RBMCs.

Third, the current water rights administrationsystem does not cover all water users. The currentwater use rights in irrigation areas are allocated tointermediary organizations responsible for irriga-tion rather than to end users. Many users, espe-cially farmers, withdraw water without permits,notably from underground aquifers, which arenot regulated at all.

Fourth, despite provisions and principles forwater rights transfers, there are no specific regu-lations on conditions, procedures, and operatingguidelines for such transfers.

Finally, there are some technical barriers toeffective water rights administration in China.For example, China lacks facilities for measur-



ing water use, especially groundwater use. Itscurrent approach is entirely based on measuringwater withdrawals from surface and ground -water sources, rather than “real” water use, interms of the amounts of water consumed bycrops and trees for evapotranspiration (ET), andtaking account of water reflows after use. Recentadvances in technology have made it possible forsuch an approach to be implemented, particu-larly for agricultural uses (Box 3.4).

Excessive Focus on Supply, RatherThan Demand Management

Lack of effective water resources policies thatfocus on demand management and encourageefficient water use is an important factor caus-ing current water scarcity. Traditionally, China’spolicies were more focused on meeting the de -mands for water by increasing supply rather thanmanaging demand. In order to increase water sup-ply to meet continuously growing demands fromeconomic activities and domestic uses, China

built many reservoirs, dug wells to pump ground-water, built canals to transfer water, and morerecently, plans to produce desalinated water. Thisfocus on increasing supply without managingdemand has contributed to over-withdrawal andinefficient use of water.

A greater focus on demand management, espe-cially the use of prices to reflect the scarcity valueof water and stimulate its more efficient use,would be appropriate. At present, water-use effi-ciency in China is quite low compared to manycountries, and the price of water for many uses(domestic, agricultural, industrial) is also lowcompared to the scarcity value of water. In 2003,water use per unit of GDP was 4.5 times the levelin developed countries, while water use per unitof industry-added value was 5 to 10 times the levelof developed countries. The average crop produc-tivity of water was 1 kg/m3, only half of the levelof developed countries.4 Therefore, there is greatpotential for demand management to play animportant role in effective water management inChina.



B O X 3 . 4 Planning Scarce Water Resources Using Evapotranspiration Quotas

Recent advances in remote sensing and GIS techniques have made it feasible to manage irrigation waterresources in terms of the amounts consumed by crops, trees, and weeds for evapotranspiration (ET),rather than water withdrawals from surface and groundwater sources. The portion consumed throughET is the “real” consumption that is lost to users downstream. The portion that returns to the surfaceor groundwater systems is still available for downstream uses, unless its quality has deteriorated to thepoint that the water cannot be reused, in which case this represents “real” losses.

In water-scarce areas, it is important to manage water resources in terms of net water con-sumption (ET) quotas. This approach encourages farmers to reduce the evaporation and transpi-ration that does not contribute to plant growth. For example, they will reduce evaporation byshifting toward dry-seeded species (from paddy), reducing waterlogged areas, irrigating whenevaporation is lowest (at night instead of during the day), using moisture-retaining mulches, andreplacing open canals and ditches with pipes. They may also reduce plant transpiration by weed-ing, using water-stress-resistant varieties, and fine-tuning deficit irrigation. Where excessive fer-tilizer and pesticides runoff is a problem, they will be encouraged to reduce nonpoint pollution,since return flows that are not reusable downstream will be deducted from their ET quota.

The Hai basin project in China will pilot water resources planning through the allocation of ETquotas. The objective is to increase the volume and value of agricultural production in the demon-stration areas using a target ET amount. The target amount will be less than the current ET, andbe gradually lowered until enough water is released to maintain environmental functions andavoid groundwater depletion; that is, until the existing water gap is closed. This goal can beachieved by gradually raising crop water-use efficiency and reducing nonbeneficial ET.

Source: The Development Research Center of the Ministry of Water Resources 2007a.

Excessive Reliance on AdministrativeMeasures Rather Than Market-Based Instruments

Due to the long tradition of a planned economyand centralized power, China has mainly relied onadministrative (“command-and-control”) mea -sures rather than market-based instruments forwater management. For example, market-basedwater pricing should be an important policyinstrument for improving water resource alloca-tion among different economic uses and forenhancing water-use efficiency. However, waterprices in China are determined politically and bytop-down administrative commands rather thanby the market.

For example, the price of water for irrigationdoes not reflect the full cost of water supply,including operation and maintenance costs plusoverhaul and replacement costs of water deliverysystems. There are no extraction fees for the agri-cultural use of groundwater, and the only pay-ment made is for the cost of energy for pumping(in the range of 0.08 yuan/m3 to 0.56 yuan/m3

in the Hai basin). In most irrigation districts,water fees are assessed on the basis of the size ofa household’s irrigated area, encouraging vastwater waste by farmers. When the cost of wateris low or unrelated to the quantity used, the ben-efit from saving water is low. As a result, the cur-rent cost recovery approach to water pricing inthe agricultural sector has not been effective inproviding incentives to save water (Huang et al.2006b).

The price of water for domestic use by urbanhouseholds is lower than the production cost ofwater. For instance, water supply for householdsin Xi’an is priced at 1.6 yuan/m3, while the fullcost is 5 yuan/m3, estimated by the local wateraffairs bureau (OECD 2007). Due to low waterprices, expenditures by urban households onwater currently account for only 1.2 percent ofdisposable income. This is lower than the levelneeded to provide an incentive for water-savingbehavior.

An adjustment in water prices to more fullyreflect its scarcity value would greatly stimulatethe adoption of water-saving techniques. Recentstudies have estimated price elasticities of waterdemand for the irrigation of grains in the rangeof −0.17 to −0.21, suggesting that a 100 percentincrease in price would lead to a 17 to 21 percentreduction in water use (Huang et al. 2006b).These savings would largely result from thegreater use of water-saving technologies such as border and furrow irrigation, alternate wet-ting and drying irrigation, field leveling, mini-mum tilling, plastic sheeting, drought-resistantvarieties, surface and underground piping sys-tems, and canal lining and sprinkler systems. Someof these technologies—such as plastic sheeting—have been reported to reduce water requirementsby up to 90 percent (Blanke et al. 2006). Thesetechnologies are familiar in many parts of China,yet the extent of adoption is quite low, largelydue to inadequate appreciation of the scarcityvalue of water, as well as lack of supportive insti-tutional arrangements.

An increase in the price of water for industryand the domestic sector can also be expected tostimulate an increase in water-use efficiency,mainly through higher rates of water treatmentto allow for its recycling and reuse.5 In recentdecades, substantial advancements in wastewatertreatment processes make it possible to effec-tively remove biodegradable material, nutrients,pathogens, and heavy metals from effluent streamsso that the treated waters can be reused in a widerange of applications. Costs will vary. A recentsurvey of Chinese enterprises and waste watertreatment plants estimated that treatment costsrange from 1.0 to 3.8 yuan/m3 for industrialuses, and from 0.8 to 0.9 yuan/m3 for domesticuses. Both are below the scarcity value of water,at least in North China (Table 3.2).

The results of a recent study on economic val-ues of water (EVW) in different regions and sec-tors in the Hai basin well reflect both marketand policy failures in water management inChina. According to this research, which was



conducted in eight case study counties in theHai River basin, the integrated EVWs in differ-ent sectors vary greatly, with those in service sec-tor more than 7 times and 1.6 times as high asthose in the industrial sector and agriculture (pri-mary) sectors, respectively (Figure 3.3). If themarket worked well, these differences wouldtend to be much smaller, since the sectors withhigher EVWs would be able to purchase waterfrom the sectors with lower EVWs, until theEVWs were more or less equalized, subject todifferences in water quality and transmissioncosts. While some differences could be justifiedby policies for food security, their magnitudeand persistence are still indicative of market fail-ure or a serious lack of market consciousness inthe water allocation process.

The adjustment of water prices can also beexpected to drive a change in the structure ofagricultural production to more fully reflect the

scarcity of water and increase water productivity.An indication of the direction of the structuralchanges is provided by an analysis of the amountof water embedded in each crop, the virtualwater content (Table 3.3). From this analysis itis evident that as part of a strategy to balance thesupply and demand of water, a country or regionthat is water scarce should increase it reliance onthe import of commodities with high water con-tent (for example, beef, pork, rice, and wheat),and apply its limited water resources to cropswith low water requirements (for example, milk,maize, and potatoes).

Insufficient Financing for Pollution Control

In the last three five-year plan periods, invest-ments in environmental protection accounted foronly 0.68 percent, 0.81 percent, and 1.19 percentof China’s GDP, respectively, which is insufficientto reach the expected level as originally planned(World Bank 2007a). Although investment inenvironmental protection in the 11th FYP period(2006–10) is expected to increase by 85 percentover the 10th FYP level, the growth rate is stillbelow the GDP growth rate of 80 to 120 per-cent every five years (Ma 2006b). Moreover, theincrease of investment in water pollution controlhas been lower than that for flood control, soilerosion control, and water resource allocation.Consequently, as acknowledged by the Chinesegovernment, lack of investment as well as poorsupervision has largely contributed to the failureto meet the nation’s pollution control targets,such as reducing COD discharge by 10 percentduring the period from 2001 to 2005, and to thedeterioration of the environment.

China began to set up the targets of urbansewage treatment in the mid-1990s. It aimed totreat 25 percent of urban sewage by the end ofthe 9th FYP in 2000. The target went up to 45 percent by 2005 in the 10th FYP and 70 per-cent by 2010 in the 11th FYP. During the 9thFYP period (1996–2000), the total investment in



T A B L E 3 . 2 Wastewater Treatment Cost for Major Industrialand Domestic Sectors

Treatment Cost Sector (yuan/m3)

Coal mining and washing 2.00Food processing 3.20Food manufacturing 1.95Beverage manufacturing 1.65Textile manufacturing 2.50Paper and paper products

manufacturing 2.50Raw chemical materials

and products 3.70Petrochemicals 3.80Medicines manufacturing 1.90Chemicals manufacturing 3.70Chemical fibers manufacturing 2.80Non-metallic mineral products 2.65Iron and steel smelting

and pressing 3.50Power generation and heating 2.00Domestic wastewater 0.8–0.9

Source: CAEP 2006.

sewerage networks and sewage treatment wasRMB 60.27 billion yuan. Although the invest-ment went up to 159.5 billion RMB yuan(including RMB 82.52 billion yuan for sewagetreatment) during the 10th FYP period, this is stilla relatively small spending item in the country’stotal fixed-assets investment (Table 3.4). Forexample, road and bridge construction invest-ment climbed to RMB 875.2 billion yuan duringthe 10th FYP, accounting for about 43 percent

of all urban fixed-asset investment, while sewagetreatment accounted for only 4 percent (Com-prehensive Financial Department, Ministry ofConstruction 2006). More importantly, whiletotal urban pollution discharge kept on increas-ing, the percentage of investment in the drainagenetwork and sewage treatment kept on decreasingduring the 10th FYP period. Investment in thedrainage network during the 10th FYP period wassmaller than that of 9th FYP period.

Although it was reported officially that thetreatment rate went up to 45.6 percent by installedcapacity in 2004 and then to 56 percent in 2006,6

the shortage of sewerage networks and funds foroperation have been widely reported, causing alow operation rate. With insufficient investment,wastewater treatment facilities, including sewer-age networks, have not been adequately built,especially in small cities and “established towns.”It is unlikely that the real treatment rate of urbansewage reaches 45 percent. After all, over half ofwastewater is untreated and directly dischargedinto the water environment, offsetting the reduc-tion in industrial wastewater discharge. The fail-ure in achieving water pollution control goalshas been well documented in the Huai Riverbasin and other areas.



T A B L E 3 . 3 Virtual Water Content ofSelected Products

Product Liters of Water per kilo of Crop

Wheat 1,150Rice 2,656Maize 450Potatoes 160Soybeans 2,300Beef 15,977Pork 5,906Poultry 2,828Eggs 4,657Milk 865Cheese 5,288

Source: Adapted from Hoekstra (2003).

0

10

20

30

40

Water withdrawal (m3, millions)

Eco

nom

ic v

alue

s of

wat

er (

yuan

/m3 )

Primary sector

Service sector

Industrial sector

53191633779

Source: Chinese Academy of Hydraulic and Hydropower Research (2007).

F I G U R E 3 . 3 Integrated Economic Values of Water and Water Withdrawals in the Primary, Industrial, and Service Sectors in Eight Regions

Low Levels of Pollution Charge

In developed countries, polluters are often liablefor the full cost of remediation and compensa-tion. In China, although the country has imple-mented a pollution levy system since the 1980s,its pollution levy and penalties for noncompli-ance are low and not often prohibitive, and the

cost of causing pollution is low compared tointernational standards. The low levels of thepollution levy provide little incentive for indus-tries to abate pollution and reduce pollution dis-charges. In many cases, it is cheaper for pollutersto pay the levy than to take actions to abate orreduce pollution. Box 3.5 provides an exampleof a specific chemical plant.



T A B L E 3 . 4 Urban Fixed-Asset Investment during the 9th and 10th Five-Year Period(RMB billion yuan)

Sewage Treatmenta Drainage Networkb Road and Bridge

Year Total Amount Percent Amount Percent Amount Percent

1996 94.86 – – 6.68 7.04 12.61 13.291997 114.27 – – 9.01 7.88 12.83 11.231998 147.76 – – 15.45 10.46 16.1 10.901999 159.08 – – 14.2 8.93 14.67 9.222000 189.07 – – 14.93 7.90 14.24 7.531996–2000 705.04 – – 60.27 8.55 70.45 9.992001 235.19 11.64 4.95 22.45 9.55 85.64 36.412002 312.32 14.41 4.61 27.5 8.81 118.22 37.852003 446.24 19.88 4.46 37.52 8.41 204.14 45.752004 476.22 17.45 3.66 35.23 7.40 212.87 44.702005 560.22 19.14 3.42 36.8 6.57 254.32 45.402001–05 2030.19 82.52 4.06 159.5 7.86 875.19 43.11

Source: Comprehensive Financial Department, Ministry of Construction (2006).a. Data for sewage treatment investment in the 9th FYP period are unavailable.b. Fixed-asset investment of drainage network is gained by subtracting fixed-asset investment of sewage treat-ment from that of drainage network. These two data are also from the China Statistical Yearbooks.– = Not available.

B O X 3 . 5 Distorted Economic Incentive for Pollution Discharge

The financial trade-offs faced by a chemical enterprise in China that is required to meet dischargestandards illustrate the distorted economic incentive for pollution control. The plant discharges1,000 m3/day of wastewater with a pH of 10.8, with average 750mg/L COD, 180 mg/L anionic sur-factants, 190mg/L BOD, and 330mg/L suspended solids. These pollutants exceed the Grade IIwastewater discharge standards that the plant is required to meet. Based on the Collection andManagement Provisions of Pollutants Discharge Fee (State Council, 2003 Order No. 31), the dischargefee for such noncompliant discharge should be 3.01 yuan/m3. On the other hand, should the enter-prise choose to treat its wastewater prior to discharging, its investment is equivalent to a capital costof 6.90 yuan/m3, not including operation cost, to which should be added a discharge fee of 0.17yuan/m3 for the pollutants remaining in the treated and compliant wastewater. Thus, paying for thenoncompliant discharge is much cheaper than building a WWTP.

Source: Louis Berger Group (2007).

SUMMARY

Many technically and economically feasible op -tions are available to increase the efficiency ofwater use and reduce pollution. Their imple-mentation, however, has been limited. This ismainly due to the country’s weak institutionaland policy framework for water resources man-agement. The fragmented institutional arrange-ments and policy failures, which rely heavily onadministrative instruments without the adequateuse of market-based instruments, are importantcauses of ineffective water management. There-fore, institutional reforms emphasizing a moreintegrated management, and policy reformsempha sizing market mechanisms, would beimportant to improve water resources manage-ment and address China’s water scarcity.

To assist China in improving its waterresources management in line with that orienta-tion, the following chapters of this report willfocus on key areas where the design and opera-tion of the institutional and policy frameworkcan be improved to stimulate an increase inwater-use efficiency and reduce pollution. Suchareas include (a) strengthening key dimensionsof water institutions and governance; (b) allo-cating and administering water rights, which isessential for the market to work; (c) settingprices right based on market mechanisms, whileprotecting the poor; (d) piloting market-basedecological compensation to achieve financiallysustainable and natural conservation; (e) pro-

moting a system and measures to strengthenwater pollution control; and (f ) improving bothemergency response and prevention to mitigateenvironmental disasters.

Endnotes1. See China Economic Net. 2006. “Seawater desalina-

tion to relieve water shortage in China.” Insight 2006-2-28-2006. Beijing. Available at: http://en.ce.cn/Insight/200602/28/t20060228_6217706.shtml.

2. See Hui Dian Market Research Network (July 22, 2005),Statement by MWR Vice Minister Zhai Haohui at 2005Summit on China’s Development to establish a resource-saving society. Available at: http://freereport.3see.com/items/2005/07/22/3074.html.

3. China undertook a new round of governmental restruc-turing in March 2008, in which the former State Envi-ronmental Protection Administration (SEPA) wastrans formed into the Ministry of Environmental Protec-tion, the former Ministry of Construction into the Min-istry of Housing and Urban and Rural Construction, andthe former State Civil Aviation Administration into theState Civil Aviation Agency as a subordinate organizationof the Ministry of Transportation. In Chinese terms, thenumber nine often means “multiple” instead of an accu-rate number.

4. China Water Development Report 2005.5. Water reuse is the use of treated wastewater for general

uses such as agricultural irrigation and industrial cooling.Water recycling is the reuse of effluent water within thesame (industrial) plant, often after treatment.

6. According to the NDRC report on the implementationof the 2006 National Plan of Economic and SocialDevelopment submitted by the National Developmentand Reform Commission (NDRC) to the National Peo-ple’s Congress (NPC) in March 2007. See http://202.123.110.5/2007lh/content_553601.htm.



4


For thousands of years, the Chinese people have been confronted with thechallenges of controlling floods and fighting droughts caused by too much ortoo little water [in the nation’s given natural conditions.] In response, theygradually developed a governing system and techniques for water manage-ment. The Dujiangyan Water Project, completed more than 2,200 years agoin the Min River basin of Sichuan Province, demonstrates the great effortsand wisdom of the Chinese people in coping with these challenges. However,traditional wisdom is insufficient for addressing current water issues, whichare far more complicated than before.

As discussed in earlier chapters, the water issues currently faced by Chinaare a result of interactions among several factors, both natural and man-made.Man-made factors have had by far the greatest impact. For example, the“sudden” burst of blue algae in Tai Lake in eastern China in May 2007,which contaminated the drinking water source and interrupted water supplyto millions of residents in the city of Wuxi in Jiangsu Province, was a combinedeffect of unusual weather (higher temperature, less rainfall) and heavy pollutionfrom the rapid economic industrialization and urbanization of the basin ofTai Lake over the past three decades. Due to the nature of water managementand inter-dependence among various water problems, the opportunity for Chinato address its water issues lies more in human actions—more specifically, ingood water governance.

This chapter focuses on water governance in China in more general terms. Itbegins with an overview of water governance in concept. The following four sec-tions examine four major aspects of water governance in China: the legal envi-ronment, institutional arrangements, information disclosure and transparency,and public participation. Each section includes an overview of the current situ-ation, points to areas for improvement, refers to relevant international experi-ences, and puts forward recommendations. To avoid repeating the discussion inprevious chapters, the discussion of institutional arrangements is mainly focusedon organizational arrangements without much elaboration on policy issues. The

Improving Water Governance

�

final section concludes with recommendations forimproving water governance in China.

THE CONCEPT OF WATER GOVERNANCE

Both governance and water governance are quitenew concepts. In just the last 10 years or so, thetwo concepts attracted much attention and wereused in studies and discussions among academi-cians and practitioners worldwide when it comesto public policy and public management. As aresult, a number of definitions of these terms havebeen devised by various researchers and organi-zations, each with a somewhat different focus.According to UNDP (2003), governance coversthe way in which power is exercised in the manage-ment of resources (natural, economic, and social)and broadly embraces the formal and informalinstitutions by which authority is exercised. It isrelated to the broader social system of governingas opposed to the narrower perspective of gov-ernment as the main decision-making politicalentity. Thus the essential elements for good gover-nance include (1) openness, transparency, andaccountability; (2) fairness and equity in dealingwith citizens; (3) efficient and effective services;(4) clear and transparent laws and regulations;(5) consistency and coherence in policy forma-tion; (6) respect for the rule of law; and (7) highstandards of ethical behavior (OECD 1997).

In line with the general definition of gover-nance, UNDP defines water governance as therange of political, social, economic, and admin-istrative systems that are in place to develop andmanage water resources and the delivery of waterservices at different levels of society (UNDP2006a). Good water governance depends on anumber of factors, including (1) strong policy,legal, and regulatory frameworks; (2) more effec-tive implementing organizations; (3) a civic deter-mination to improve water governance; and(4) appropriate investment (World Bank 2006b).Some researchers identify other principles foreffective water governance, such as (1) opennessand transparency; (2) inclusiveness and effective

communication; (3) coherence and integration;(4) equity and ethics; (5) accountability; (6) effi-ciency; (7) responsiveness; and (8) sustainability(Rogers and Hall 2002).

These definitions of water governance suggestthat the three main pillars of water governance arethe legal framework, institutional arrangements,and civil society. The legal framework covers all thewater-related laws and regulations that (1) definewater property rights and necessary environmen-tal and technical standards; (2) establish instru-ments for implementing the rights and achievingthe standards, including decision-making andplanning instruments, implementing instruments,and monitoring and evaluation instruments;(3) create an institutional system for water gov-ernance; and (4) set up enforcement procedures.The institutional arrangements for water gov-ernance include all governmental entities thathave direct executive responsibilities related towater, their authorities and duties, the inter- andintra-department relationships established by thelaws, and the processes and mechanisms of theiroperation.

Lastly, civil society, as the third pillar of watergovernance, reveals itself through many variedchannels and forms. Public participation is one ofthe features of civil society involvement, whichin turn differentiates water governance from tradi-tional water management by government. There-fore, good water governance depends on thewell-coordinated efforts of all stakeholders—including governmental organizations at all lev-els, relevant business communities, the public atlarge, and NGOs—working within a sound legalframework.

THE LEGAL ENVIRONMENT FOR WATER MANAGEMENT

Over the past two decades, China has made muchprogress in improving its legal framework forwater management, both in legislation and inenforcement of laws/regulations. The existingframework includes relevant stipulations in theConstitution as the primary source of legality

I M P R O V I N G W A T E R G O V E R N A N C E


and authority. At the second level are nationallaws and their implementation guidelines, suchas the Water Law, Water Pollution Prevention andControl Law, Water and Soil Conservation Law,Flood Control Law, and Fishery Law. The thirdlevel of legislation includes national and sec-toral administrative regulations on water, suchas the Regulation of River Channels, and theRegulation of Flood Prevention; and local regu-lations and rules that have played a critical role inregional water management.1 Within this frame-work, the Water Law promotes an administrativestructure for water resources that integrates riverbasin management with regional administra-tive management, and recognizes the legal statusand responsibilities of river basin managementorganizations.

While strengthening legislation for watermanagement, China has also made efforts tostrengthen law enforcement. The NPC and rel-evant ministries/authorities at the central levelof government inspect the implementation andenforcement of laws and regulations on a regularbasis. Some authorities such as MWR and SEPAmake scheduled or unscheduled performance eval-uations to improve the enforcement of laws andregulations. In 2006, the establishment of fiveRegional Environmental Supervision Centers inChina (as subordinated offices of SEPA) was anew attempt to strengthen enforcement of envi-ronmental laws, including those related to waterpollution management. In the 11th Five-YearPlan for Environmental Protection, one of themajor tasks is to establish a comprehensive systemfor environmental law/regulation enforcementand supervision. In the newly amended WaterPollution Prevention and Control Law promul-gated in February 2008 and effective on June 1,2008, stricter penalties against noncompliers areadded to enhance law enforcement.

Areas for Improvement

Despite the progress described above, the effec-tiveness of the legal framework for water resourcemanagement is unsatisfactory. Overall, law

enforcement in this area has been lax in China, asevidenced by the nation’s serious water-relatedproblems, including rampant nationwide waterpollution dramatized by the algae outbreak inTai Lake. Many studies (Chinese Academy ofSciences 2007; China Institute of Water Resourcesand Hydropower Research 2007) have pointedout that the legal framework leaves much roomfor improvement. Its main weaknesses and areasfor improvement are summarized below.

Weak law enforcement

Law enforcement is a real problem in China, notonly in the area of water pollution control, butalso in broader areas like water exploitation andconservation. Ineffective law enforcement can beattributed to three main factors:

1. Lack of mechanisms and procedures. Exist-ing laws and regulations usually are focusedon principles and lack mechanisms and pro-cedures for enforcement, such as super -vision, monitoring, reporting, evaluation,and imposition of penalties against violators.As mentioned above, the newly amendedWater Pollution Prevention and ControlLaw includes stricter penalties against non-compliers. However, without more detailedguide lines for implementing the law and pro-found reform of the law enforcement system,effective implementation of those measuresremains a question.

2. Inadequate institutional arrangements. Thecentral government relies on local governmentagencies in law enforcement. In some cases,when local governments feel that enforcementcould cause losses in local economic growthand local tax revenue, they tend to hinder lawenforcement or take a passive attitude towardenforcement. Insufficient resources availablefor enforcement agencies also result in weakgovernmental enforcement capacity.

3. Lack of transparency and participation. Lackof transparency and relatively low levels ofpublic participation have led to poor public



supervision, contributing to weak law enforce-ment. In this regard, China can learn goodpractices of law enforcement from other coun-tries (for example, see Box 4.1 regarding expe-riences in the United States).

Incomplete legal systemThe coverage of the existing legal framework isstill limited. For example, while the Water Pol-lution Prevention and Control Law requires thatthe state establish and improve compensation



B O X 4 . 1 The U.S. Experience in Promoting Law Enforcement

The Clean Water Act (CWA) in the U.S. has various stipulations on violations and penalties, such as: (i) “Any person who violates a permit condition or order of the EPA Administrator shall be subjectto a civil penalty not to exceed $25,000 per day for each violation;” (ii) “In determining the amountof a civil penalty the court shall consider the seriousness of the violation or violations, the economicbenefit (if any) resulting from the violation, any history of such violations, any good-faith efforts tocomply with the applicable requirements, the economic impact of the penalty on the violator, andsuch other matters as justice may require”; and (iii) “Any person who knowingly makes a false state-ment in any report or who knowingly falsifies any monitoring device shall, upon conviction, be pun-ished by a fine up to $10,000 or imprisonment for no more than 2 years or both.”

The following three examples illustrate how these provisions are applied:

Example 1. United States v. Roll Coater, Inc. 21 ELR 21073 (S.D. Ind. 1991). Roll Coater is a coil coat-ing company accused of emitting “unsatisfactorily treated effluent” into the City of Greenfield’swastewater system. The District Court for the Southern District of Indiana calculated the statutorymaximum penalty under § 309(d) to be $52,945,000. However, §309(d) also includes mitigating fac-tors, which eventually lessened the fine to $2,093,456 because the firm needed time to test out newtreatment technologies.

Example 2. United States v. Smithfield Foods, Inc. 972 F. Supp. 338 (E.D. Va. 1997). SmithfieldFoods is a large pig slaughtering and processing operator. For years it discharged waste into thePagan River in Virginia in violation of its permit. The court calculated the economic benefit to Smith-field of noncompliance with the CWA to be $4.2 million. Citing statutory factors such as the fre-quency and severity of Smithfield’s violations and their impact on water quality, Smithfield’s historyof violations, and the inadequate compliance efforts, the court increased the penalty to $12.6 mil-lion (or 7.2 percent of the maximum penalty). 191 F.3d 516 (4th Circuit, 1999).

Example 3. Exxon Valdez Oil Spill Prince William Sound, Alaska. The U.S. and Alaska brought alawsuit against Exxon under CWA 311(f) for injury to natural resources to recover costs of clean-upand restoration following an 11-million-gallon crude oil spill in 1989. Exxon spent $2 billion onclean-up. 10/8/1991 Consent Decree—compensation for damages to fishermen and businesses of atleast $900 million. Fishermen and businesses that suffered injury also sought punitive damages. Thetrial court jury awarded punitive damages of $5 billion. The federal appellate court, In re ExxonValdez, 270 F. 3rd 1215 (9th Circuit, 2001), reduced this to $2.5 billion. On 10/29/07, the U.S.Supreme Court agreed to review the appropriateness of punitive damages under CWA and federalmaritime law.

There are also many other means of promoting compliance and enforcement in the U.S., such as:(1) media—newspapers or TV report on corporate pollution, often based on information suppliedby citizen groups; (2) banks loaning money to a corporation or municipality may want evidence thata company is in compliance with environmental laws; (3) government contracts may require thata company be in compliance with all environmental laws; (4) disclosure by corporations of legalproceedings in financial documents filed with the U.S. Securities and Exchange Commission (SEC);(5) Item 101 of SEC regulation requires a company to disclose the material effects that compliancewith federal, state and local environmental laws may have upon its capital expenditures, earnings,and competitive position; (6) A firm must disclose any material administrative or judicial proceed-ings arising under environmental laws. 17 CFR § 229.103.

Source: Tripp 2007.

mechanisms for ecological protection of the waterenvironment in drinking water source areas andupstream of rivers, lakes, and reservoirs by instru-ments such as payment transfers, there are nosupporting national laws or regulations in sup-port of ecological compensation in river basins.Neither is there a law on water rights and trading.There are few laws to specify the procedure ofmaking and enforcing water-related laws andpolicies, contributing to ineffective law enforce-ment, as mentioned above. In addition, whilethere are some general rules and regulations inplace requiring an overall plan and integratedutilization for water resources, there is no spe-cific regulation on master plans for managementof cross-boundary rivers and lakes.

Ambiguous legal provisions

Some laws contain ambiguities. For example, theWater Law does not clearly define the authority ofthe local governments and the river basin man-agement organizations. Neither does it clearlydemarcate the authority of environmental protec-tion agencies versus the role of water administra-tive organizations in aspects of water management,such as water quality monitoring. The WaterPollution Prevention and Control Law defines theresponsibilities and duties of local government inwater environmental protection, but does not pro-vide financial arrangements for local governmentsassuming the responsibilities. Such ambiguityin the provisions causes a vacuum of authority andweakens the effectiveness of the legal system.

Conflict between legal provisions

Some laws tend to serve the interests of certainsectors instead of national interests. In some areas,these sectoral laws contradict each other. Thisis partially due to the “sector-based” legislativeprocess, in which a ministry or administrativeentity of the central government is normallyentrusted with the drafting of a law or regulationon a subject within its jurisdiction. Because of theweak capacity of the NPC for legislation on somespecial subjects (due to lack of expertise and poorconsultation) and poor coordination between dif-

ferent ministries/entities in the drafting of the law,it is not unusual that such a law adopted by theNPC may represent sectoral interests and conflictwith other laws drafted by other line ministries orauthorities. For instance, before it was amendedrecently, the Water Pollution Prevention andControl Law (Article 18) stipulated that waterresource protection agencies in river basins areresponsible for monitoring and evaluating sur-face water quality and reporting to SEPA andMWR. However, the Water Law (Article 32)requires that the water bureaus of the localgovernments above the county level and riverbasin organizations be responsible for monitor-ing water quality in water function zones andreport to local governments and environmentalprotection agencies.

Recommendations for Legal System Reforms

Based on this discussion, we offer several recom-mendations.

Developing an action plan for improvingthe legal framework

China is currently in the process of a broad reformtargeted to strengthen the rule of law. The actionsto improve the legal framework for water manage-ment should keep pace with this overall process.While it is unrealistic to have the legal frame-work perfected within a short period, an overallplan and road map for improving the legal envi-ronment should be worked out. In the short term,the emphasis should be on improving the inte-gration and coordination of various water-relatedlaws and regulations—especially the Water Lawand the Water Pollution Prevention and ControlLaw—to avoid contradictions and conflicts. In thelong run, it should aim to establish a comprehen-sive water management legal system to cover theremaining areas of water resource management.

Improving law enforcement

Improving law enforcement is the number onepriority to make the legal framework useful and



effective. As stipulated in the State Council’sCompendium of Implementation for Fully Pro-moting Law-Based Administration promulgatedin 2004, a series of actions need to be taken:

1. Implementation procedures: Detailed imple-mentation procedures should be stipulated inall water-related laws and regulations to makeexisting laws and regulations operational andenforceable. For example, detailed guidelinesfor implementing the Water Pollution Preven-tion and Control Law should be developed,and the existing systems of total pollutant con-trol and pollution emission permits shouldbe improved.

2. Strengthened supervision and inspection:Supervision and inspection by the national andlocal congresses and administrative branchesshould be strengthened. Adequate budget andpersonnel for such inspection and supervisionshould be provided by law so that the localagencies responsible for law enforcement canbe independent of local authorities.

3. Public participation: The public should beempowered to help monitor and track downviolators and supervise local agencies responsi-ble for law enforcement. Public-private part-nerships should be encouraged by laws andregulations.

Overcoming sectoral and local interests in the process of legislation

The current legislative process has undermined thequality of laws and regulations. The Compendiumof Implementation for Fully Promoting Law-BasedAdministration has reiterated the importance ofdeveloping sound and effective procedures for leg-islation. One option is to strengthen the role of thePeople’s Congresses at different levels in preparinglaws and regulations, with a special emphasis onreviewing and evaluating draft laws/regulations byexperts and various stakeholders as an indispens-able step in the process of legislation. Another isthat different ministries/entities should take amore coordinated and integrated approach in

preparing water-related laws/regulations througha coordinating mechanism set up in the StateCouncil, so that any water-related law or regu-lation is reviewed and accepted on a consensusbasis by all relevant ministries/entities before itis submitted to the Congress for deliberation andapproval. In addition, public participation suchas public hearings should be required and imple-mented as an important step in the legislativeprocess.

Amending and improving existing water-related laws and regulations

Given the vagueness and even contradictions ofexisting laws and regulations, the NPCs shouldcarry out a careful review of all existing water-related laws. The laws and regulations shouldbe revised, also taking into account the enforce-ment issue and integrated water management.For the Water Law, it should more clearly definethe authorities, responsibilities, and coordinationmechanism for different administrative organiza-tions such as MWR, MEP, RBMCs, and relevantorganizations at the local level. It should alsoclarify the linkages between all these organiza-tions; clarify the status, responsibilities, operationalmechanisms, and process of river basin manage-ment organizations; and require a stakeholderparticipation mechanism at the basin level. Forother water-related laws and regulations, amend-ments are needed to make them consistent withthe Water Law and the newly amended WaterPollution Prevention and Control Law.

Providing a legal basis for RBMCs with theactive participation of local governments

The role of RBMCs in planning, allocation, anddevelopment of water resources should be legallyspecified, preferably in primary legislation. Giventhe important role of local governments in waterresource management, their participation as amember of the RBMC in planning and imple-mentation should be required by law. Realizingthat it may take some time to enact such a law orlegal provision, China should start with feasibil-



ity studies and pilots at the local level. As part ofthis process, it is useful to examine internationalexperience in river basin legislation and manage-ment (see Box 4.2).

INSTITUTIONAL ARRANGEMENTS FORWATER RESOURCE MANAGEMENT

The UNDP’s Human Development Report 2006(UNDP 2006b) concludes that the global crisisof freshwater supply is essentially a public man-agement crisis, which in turn is primarily the resultof an improper and incomplete public man-agement system and slow reform progress. Thatstatement fits the case of China. As discussed inchapter 3, for China there are many economicallyfeasible technical options available to increase theefficiency of water use and reduce pollution thatwould contribute to addressing its water issues.However, because of its weak water managementsystem, these options have only been adoptedand implemented to a very limited extent. In linewith lessons from global experience, it is expectedthat their wider implementation will have to besupported by improved institutional arrangementsfor the various levels of government in China.


As discussed in Chapter 3, a major weakness is theexcessively fragmented water management system.Horizontally, too many agencies are involved inwater management along sectoral lines, with onlyvague boundaries separating their responsibilities.This has not only led to overlapping responsi-bilities, but also to inconsistent and sometimesconflicting policies made by different agencieswith weak coordination among them. From avertical perspective, water management is tied toadministrative boundaries. Within the five-tieredadministrative structure (national, provincial,municipal, county, and township), most water-related institutions respond to only a single level,with no relationship to the levels above or below.Each administrative unit (provinces, municipal-ities, counties, etc.) is responsible for making andimplementing policies within its jurisdiction,mostly based on its own interest and prioritieswithout enough attention to their impacts on theintegrity of water resources and the whole riverbasin. Ironically, although China has a rathercentralized power structure, the central govern-ment’s policies are often resisted or ignored by



B O X 4 . 2 River Basin Management Legislation in the United States: The Case of the Susquehanna River Basin

The Susquehanna River, the sixteenth largest river in the United States, runs through populous areasin the states of New York, Pennsylvania, and Maryland. It is classified as a navigable waterway by thefederal government. The Susquehanna River basin, though still relatively wild and partially undevel-oped, experienced a period of environmental negligence. The river was polluted, its water resourcesoverexploited.

Because the river runs through three states, there was clearly a strong need for coordinating theefforts of the three states, together with the federal government. The parties agreed to establishone management system to oversee the use of water and related natural resources throughout thebasin. This collaboration also led to the drafting of the Susquehanna River Basin Compact.

The compact, as adopted by the Congress of the United States and the legislatures of New York,Pennsylvania, and Maryland, was signed into law on December 24, 1970. It provides the manage-ment mechanism to guide the conservation, development, and administration of the water resourcesof the river basin. Under the compact, the Susquehanna River Basin Commission (SRBC) was estab-lished as the agency to coordinate the three states and federal government.

The federal and local governments have since then worked closely to solve the problems in theSusquehanna River basin. Strict laws have been introduced to prohibit point-source pollution, regulate mining, and control erosion.

Source: http://www.srbc.net/.

local governments responsible for their imple-mentation. Efforts to deal with externalities andthe characteristics of water resources as a publicgood tend to end in failure.

Other areas for improvement discussed inChapter 3 include (1) an underdeveloped systemof water rights administration, particularly thevague definition of water ownership that has ham-pered the implementation of market mechanisms;(2) an excessive focus on supply rather thandemand management, which contributes to thelow efficiency of water use and increased pressureon water resources; (3) an excessive reliance onadministrative measures rather than market-basedinstruments, which not only burdens the admin-istrative capacity of the government and raisestheir administrative costs, but also distorts the allo-cation of water resources; (4) insufficient publicfinancing for water pollution control, especiallywhen compared to the economy’s rapid growthand accompanying water pollution, which con-tribute to the difficulty of reducing overall pollu-tion levels; and (5) low levels of pollution chargesand resource pricing, which fail to provide incen-tives for pollution reduction and resource saving.

International Experience in Institutional Arrangements

Most countries are faced with water issues in oneway or another and have been making efforts toaddress them. In terms of institutional arrange-ments, while practices of different countries vary

greatly, some can be shared by many countries(Box 4.3).

Since the 1990s, in response to the complexwater problems they are facing, more and morecountries have adopted a more systematic andintegrated approach to water management toconsider water supply, pollution control, agri-culture, hydropower, flood control, and navigationtogether. For example, the European Commissionpromulgated the Water Framework Directive(WFD) in 2000 (Box 4.4) and set up a commonintegrated approach, making integrated river-basin planning and management compulsory forits member states and candidate countries. TheU.S. Clean Water Act also adopts an integratedapproach, shifting from the conventional strategyof pollution control from project to project, fromsource to source, and from pollutant to pollutantto a new strategy of integrated, river-basin-basedpollution control.

In line with this integrated approach, govern-mental institutions for water management havebeen arranged or restructured in several countries.Two features are common in these governmentalarrangements. First, at the national level, watermanagement duties are assumed by one or twoinstitutions. For example, in the UK, the Environ-mental Agency (EA) is the leading central admin-istrative body with responsibility for long-termwater resource planning and the duty to conserve,augment, redistribute, and secure the proper useof water. In France, major agencies at the nationallevel responsible for water resource management



B O X 4 . 3 Three Models of Water Resource Institutions in Europe

Model 1: River-basin (watershed)-based management systems. In the UK and France, these have cen-tralized administrations; in Spain, a semi-federal administration. The scope of these entities isdefined by the geographical boundaries of a river basin, whose water resources they manage in coor-dination with different interests along the entire river basin.

Model 2: Administration-boundary-based systems. Adopted in many countries, the scope of theseentities is defined by administrative regions within which they coordinate with relevant agencies onthe integrated management of the water resources.

Model 3: Coordinating model in the Netherlands. A combination of the above two, focusing oncoordinating and balancing the interests of the administrative regions and the whole river basin.

Early European water legislation began in 1975 with a “first wave” of standards for rivers and lakesused as sources of drinking water and culminated in 1980 with a set of binding quality targets fordrinking water. A second wave of water legislation followed in 1991 with the adoption of the UrbanWaste Water Treatment Directive, which provided for secondary (biological) wastewater treatment,and the Nitrates Directive, addressing water pollution by nitrates from agriculture. It was completedin 2000 with the adoption of the EU Water Framework Directive. Some of the key elements of thisdirective are:

(1) A single system of water management: river basin management. The best model for a single sys-tem of water management is management by river basin—the natural geographical and hydro-logical unit—instead of according to administrative or political boundaries.

(2) Coordination of objectives: good status for all waters by a set deadline. There are a number ofobjectives. The key ones are (a) general protection of the aquatic ecology, (b) specific protection of unique and valuable habitats, (c) protection of drinking water resources, and (d) protection of bathing water, all of which must be integrated for each river basin.

(3) Coordination of measures. The aim is to coordinate the application of measures at the community level to tackle particular pollution problems, key examples of which are the UrbanWaste Water Treatment Directive and the Nitrates Directive.

(4) Public participation. There are two main reasons for an extension of public participation: balancing the interests of various groups, and to underpin enforceability.

(5) Getting the prices right. The aim is to set water prices at levels adequate to act as an incentivefor the sustainable use of water resources in order to reflect the true costs of the environmentalobjectives.

are the Environment Ministry and the NationalWater Committee. The Environment Ministryis responsible for protection, management, andupgrading of aquatic environments and riversystems, water quality, programming, and coor-dination of state intervention in relevant sectors.The National Water Committee, chaired by amember of the Parliament and composed of rep-resentatives of the National Assembly and theSenate and of important institutions and nationalfederations, plays a key role in national waterpolicy and in drafting legislative and regulatorytexts. In Singapore, the Ministry of Environmentand Water Resources was established in 2002through the merging of the former Public UtilitiesBoard (PUB), which used to be responsible forwater resources and supply only, and the for-mer Ministry of Environment, which used to beresponsible for sewage treatment and the seweragesystem. As part of the Ministry of Environment

and Water Resources, the restructured PUB’sresponsibilities have been extended and nowinclude sewage treatment and reuse, flood con-trol, and the sewer system, in addition to waterresources and supply.

The other feature is that water managementis based on river basins instead of boundaries ofadministrative jurisdictions or sectors, and spe-cific organizations based on river basins are setup for water resource management. For example,the UK Environment Agency has eight regionaloffices corresponding to the eight big river basinsin England and Wales. France has set up a riverbasin committee and water agency in each riverbasin, both involved in the preparation of theWater Resources Development and ManagementMaster Plan, and supervised by the Ministry ofthe Environment. In the United States, the Envi-ronmental Protection Agency has ten regionaloffices; each covers several states and one or more



B O X 4 . 4 The EU Water Framework Directive

Sources: Gislev 2007; see also http://ec.europa.eu/environment/water/water-framework/index_en.html.

Since the 1990s, the experience of water governance in various countries has led to a broad interna-tional consensus that the best solution for water issues lies in drafting overall plans to manage water-related affairs at the river-basin level. This process, known as integrated river basin management(IRBM), came to prominence after the 2002 Earth Summit in Johannesburg, South Africa. IRBM hasbeen implemented in EU countries, the United States, Canada, South Africa, and elsewhere.

IRBM is a process of coordinating the management and development of water, land, biological,and other resources within a river basin so as to maximize economic and social benefits in an equitable way, while at the same time conserving freshwater ecosystems, species, and resource ser-vices for people.

IRBM is not a simple amalgamation of existing management of water, soil, biological, and otheraspects. It moves away from the former practice of separated regional and sectoral administrationand features the following:

• A river basin is an ecosystem that cannot be split into isolated sections. IRBM can help understandthe cycles of evolution, development, and change to river basin ecosystems and adapt their man-agement to fit with the natural order by using ecosystem approaches to manage water, soil, andother natural resources basin-wide.

• In terms of management objectives, IRBM tries to balance economic development, social progress,and ecological and environmental protection to maximize the economic, social, and environmentalbenefits throughout a river basin. This could be achieved through the active participation of stake-holders, and coordination between different governmental agencies. Strict environmental stan-dards, as well as pressure on local governments from both the central government and the public,can also play significant roles.

• IRBM administrative targets focus on water and water resources, aiming for systematic manage-ment of water resources, the water environment, land resources, and aquatic ecosystems. Thiscould help solve the conflicts between governmental agencies regarding water resource manage-ment, water environmental management, as well as land resources management.

• IRBM involves a combination of structural and nonstructural measures, with special care taken whenadopting irreversible measures to harness a river basin. It advocates management approaches thatcut across sectoral and jurisdictional boundaries and the use of legislative, administrative, economic,planning, and scientific and technologic instruments in a comprehensive fashion.

• IRBM emphasizes management processes that include the active participation of stakeholders. Theinvolvement of stakeholders in management, planning, and policy making, as well as many otherbasin-level affairs, is essential for the success of IRBM.

IRBM has not been easy to implement in either developed or developing countries. This is especiallythe case for China with its fast-growing economy. The first steps toward implementing IRBM shouldbe to define the rights, responsibilities, and obligations of the relevant stakeholders; discuss how toenhance information sharing, communication, and coordination between and among them in orderto reach consensus on IRBM; and jointly seek the best solutions to these basin-level issues.

entire river basins that cross several state jurisdic-tions. The U.S. also set up some river-basin-basedwater commissions as interstate institutions toaddress cross-state water management issues.Typically, members of these commissions includerepresentatives of the federal government, stategovernments, and other stakeholders. In addition,

the concept of integrated river-basin managementhas been increasingly adopted by governmentsof many countries (Box 4.5).

These experiences of other countries in insti-tutional arrangements for water managementprovide useful information for China to improveits water governance.



B O X 4 . 5 Integrated River Basin Management

Source: Wang et al. 2007.

Recommendations for Organizational Reform

Focusing on the areas for improvement in institu-tional arrangements for water management inChina discussed above, and based on internationalexperience, our recommendations are as follows:

Shifting to a new paradigm of water management

The traditional approach to water management,fragmented along sectoral and regional lines, canexacerbate water problems rather than addressthem. China should make a shift from the currentparadigm to a new paradigm of integrated watermanagement. That suggests a profound reform,ranging from restructuring government organi-zations, to improving legal frameworks, and todeveloping innovative policy instruments.

Strengthening coordination among existingagencies and organizations

As water involves so many stakeholders, even incountries adopting the integrated approach, thereare still many institutions and organizationsinvolved in water management. For example, 17organizations at the federal level are involved ingroundwater management in the U.S. In China—given the reality of the multiple-tier governmentstructure and multiple agencies at each tierinvolved in water management—in the short runit is more important and feasible to first strengthencoordination among those agencies by establishinga proper coordinating mechanism. Regular inter-agency consultation, compulsory informationsharing, cross review and endorsement of relevantpolicies and plans, and joint policy making arecomponents of the coordinating mechanism.

Restructuring governmental organizationsfor integrated water management at the national level

There are several options. One option is to estab-lish a State Water Resources Commission as acoordinating and steering organization on water-

related affairs across the country at the highestlevel of government. It should be chaired by thepremier or a vice premier, and its members wouldbe heads of all water-related ministries/agenciesat the central level. Its major missions would be todirect the development of a national water strategy,examine long-term plans for water develop-ment, allocation, and use, and coordinate allwater-related ministries/agencies to avoid pol-icy inconsistency and conflicts before they areimplemented. This commission will serve as ahigh-level water policy-making body, much likethe newly established State Energy Commissionheaded by the premier. At the ministry level, anoption would be to merge major water-relatedduties currently put under different governmentagencies (namely MWR, MEP, MOA, MOC,and MLR) and establish a new super ministry toimplement unified management of water quantityand quality, surface water and groundwater, waterresource conservation and use, and water environ-mental protection.

Establishing and reshaping river basin commissions

China should establish river basin commissionsfor all major rivers and lakes that run acrossdifferent provinces/municipalities. Specific pro-visions should be added to the Water Law andother laws/regulations to provide legal statusand clarify the authorities/responsibilities ofthe new type of RBMCs. Since the existingRBMCs for the seven major rivers in China, assubordinates of MWR instead of real “commis-sions” as they should be, do not have enoughpower or representatives from local govern-ments, they should be reshaped. In the shortrun, as organizations on behalf of the centralgovernment, RBMCs could consider the involve-ment of representatives from MEP. In the longrun, they should be made independent of MWRand accountable to the State Council directly.Their governing board should include repre-sentatives from both the central government andprovincial/municipal governments to ensure



appropriate accountability for basin-wide waterresources management.

TRANSPARENCY AND INFORMATION DISCLOSURE

Transparency is one of the essential elements ofgood governance and a basic prerequisite for pub-lic participation in public management. In termsof water management particularly, transparencymeans that the public can have better access toinformation on water resources, policies, and insti-tutions on water-related issues and water-relatedbehaviors of various stakeholders.

Current Status

The Chinese government has been aware of theimportance of transparency to good governanceand made efforts to increase the openness ofpublic administration. In the Compendium ofImplementation for Fully Promoting Law-BasedAdministration promulgated in 2004 by the StateCouncil, administrative agencies are required toopen to the public all governmental informationexcept that related to state secrets, business secrets,or personal privacy. In 2005, the Guidance forFurther Enforcing Openness of AdministrativeAffairs (GFEOAA) was promulgated. In April2007, the Government Information DisclosureRegulation (GIDR)—which was promulgatedby the State Council and took effect on May 1,2008—defines the range of government infor-mation, sets methods and procedure for infor-mation disclosure, designs dispute resolutionmechanisms, and provides specific provisions onperformance supervision.

Following these important official documentsby the State Council, the MWR issued GFEOAAfor Water Management in June 2005, andMWR’s Provisional Regulation on Openness ofAdministrative Affairs in May 2006. These twodocuments define the scope of information thatshould be disclosed to the public and variousforms of information disclosure, ranging from

official bulletins and public hearings to web-based channels. The Regulation of Hydrology,issued in 2007, focused on water quality moni-toring and also set requirements on informationdisclosure.

SEPA also issued official documents to enhanceinformation disclosure. The Provisional Regula-tion on Public Participation in EnvironmentalImpact Assessment, promulgated in 2005, definesthe scope of information that project organiza-tions should make available to the public, aswell as forms of disclosure and time limits fordisclosure. MEP’s Environmental InformationDisclosure Decree, which was put into effect onMay 1, 2008, makes it a compulsory responsibil-ity for enterprises and governments to disclosetheir important environmental information tothe public.

In addition to these regulations by centralgovernmental agencies, local governments havealso promulgated regulations and policies topromote water-related information disclosure.Reports on the state of large river basins havebeen delivered on an annual basis to provideinformation on water conditions and manage-ment in whole river basins. As a result, the pub-lic has better access to water-related information,and the administration of water issues is muchmore transparent than before.


Even with the progress above, especially in policymaking for enhancing transparency, the opennessof public administration in water managementis still limited in China. Major areas for improve-ment are summarized below.

Limited disclosure of information on water

Most of the information that existing regulationsrequire to be made open to the public is on gov-ernment organizations in charge of water affairsand their responsibilities and behaviors. Infor-mation on water itself—including water qualityand quantity and such causal factors as water



users and pollution sources—is not emphasizedenough. In reality, such information is not onlyinaccessible to the public, but also inaccessible toother governmental organizations outside thosesectoral or local government organizations. It isnot unusual that a specific organization respon-sible for water management has kept the infor-mation it collected and does not share it withother organizations. As a result, each organiza-tion has its own database, and the informationissued is not consistent. This is illustrated, forexample, by the different water quality data forthe Huai River reported by MEP and MWRshown in Figure 3.2 in Chapter 3.

Ambiguity of terms leading tononcompliance in information disclosure

In some existing regulations, the definition ofwhat information should be disclosed to thepublic is not clear enough. As a result, someorganizations take advantage of the vagueness ofthe regulations and refuse to disclose water-related information. For example, the currentregulations require that all information exceptthat related to state secrets, business secrets, orpersonal privacy should be open to the public.However, there is no clear definition of whatinformation relates to state secrets or businesssecrets. Thus, some organizations or enterprisesrefuse to disclose water-related information inthe name of protecting state secrets or businesssecrets.

Incomplete legal system for information disclosure

The citizens’ right of access to information is notemphasized properly in formal laws. For example,there are very few clauses on information disclosurein the Water Law and the newly amended WaterPollution Prevention and Control Law. In theexisting regulations on information disclosure,the provisions on the procedure of informationdisclosure are not detailed and very few provi-sions are provided for measures against noncom-pliers. The Environmental Information Disclosure

Decree provides for a punishment for nondis -closure, with a maximum fine of 100,000 yuan(less than $14,000), but that is too low to be aneffective incentive. Besides, current laws do notspecify how to provide compensation for the lossescaused by noncompliance with information dis-closure requirements. In addition, although sev-eral regulations on information disclosure arepromulgated, they are not implemented wellbecause of weak supervision by both the govern-ment itself and the public.

International Experience inEnhancing Transparency andInformation Disclosure

As information disclosure is essential to goodwater governance, many countries, especiallydeveloped countries, attach importance to itand have enacted substantial legal measures toenhance it.

In 1990, the EU adopted the Directive on theFreedom of Access to Information on the Envi-ronment, which promotes environmental infor-mation disclosure (Box 4.6). In 1998, the EUsigned the Convention on Access to Informa-tion, Public Participation in Decision-Makingand Access to Justice in Environmental Matters(the Århus Convention), which was put intoeffect on October 30, 2001. In this convention,the right of access to information is regarded asone of three pillars of public participation inenvironmental management. In 2003, the EUissued a new Directive on Public Access to Envi-ronmental Information, which took effect onFebruary 14, 2005. As a binding document forall member states, the directive grants the publica right of access to environmental information,provides for a broader definition of environ-mental information, and establishes a deadline ofone month (reduced from the previous two) forpublic authorities to supply the informationrequested. It also clarifies the circumstancesunder which authorities may refuse to provideinformation. Access to information shall be



granted if the public interest served by the dis-closure outweighs the interest served by a refusal.The directive grants the public the right to chal-lenge acts or omissions of public authoritiesrelating to requests for environmental informa-tion and specifies review procedures for that.Following these EU directives, the memberstates revised or made laws/regulations to enhanceinformation disclosure.

In the United States as early as 1979—in lawssuch as the Clean Water Act, the Resource Con-servation and Recovery Act, and the Safe Drink-ing Water Act—the Environmental ProtectionAgency promulgated regulations setting minimumregulatory requirements and suggested informa-tion, notification, and consultation responsibilitiesas program elements for public participation. Itrequired that each agency should provide thepublic with information on continuing policy,program, and technical issues at the earliest prac-ticable time. For controversial issues or significantdecisions, each agency is required to provide oneor more central depositories of reports, studies,plans, and other documents in a convenient loca-tion, such as public libraries.

Recommendations for Actions to Enhance Transparency

To protect the citizens’ right of access to infor-mation on public affairs, facilitate public partic-ipation in water management, and prevent thepublic from harm by water emergencies, it iscrucial for China to take actions to enhance thetransparency of the government and water-relatedinformation disclosure. Major actions recom-mended are summarized below.

Make public information disclosure acompulsory obligation of the government,companies, and relevant entities

The government should be fully committed tousing the information disclosure approach inwater resource management. Public informationdisclosure requirements should be incorporatedin all major development strategies, policies,regulations, and operational procedures. Rele-vant governmental organizations should regularlyrelease to the public information on water qualityand pollution sources. The information must beaccessible for the public and concerned groups/



The main EU legal instrument on access to environmental information is the Directive on the Free-dom of Access to Information on the Environment adopted in June 1990. The directive makes it clearthat:

• Providing a general right of access to information, rather than a more specific right of access toenvironmental information, is preferable.

• Access to information should be a right. Exceptions to this right of access should be interpretednarrowly and used only in exceptional circumstances.

• The time limits for the provision of information should be short—weeks or days rather thanmonths.

• Fees for the provision of information should be reasonable and well known to the requester.

• Continuing awareness building and training of officials is crucial in building a good access-to-infor-mation system.

• The public should be informed about what information is available and the means for obtainingthat information.

• The appeals process should be inexpensive, and decisions on appeals need to be speedy.

B O X 4 . 6 EU Directive on the Freedom of Access to Information on the Environment

Source: Resources for the Future (2001), http://www.rff.org/documents/RFF-RPT-pubaccess.pdf.

communities and be made available throughmultiple channels.

Build a sound legal base for information disclosure

The legal basis for information disclosure has tobe strengthened. For this purpose, China should(1) add clauses in such laws as the Water Law,Environmental Protection Law, and Water Pollu-tion Prevention and Control Law to emphasize thecitizens’ right of access to environmental infor-mation and make information disclosure a com-pulsory obligation of governmental organizations,water companies, enterprises discharging pollu-tants, and other major stakeholders; (2) definein more detail in laws/regulations the scope ofinformation that is supposed to be disclosed tothe public and the scope of information regardedas state secrets or business secrets subject to pro-tection, and specify the forms, procedures, andtime requirements for information disclosure;and (3) draft clauses on the liability of those whohave not disclosed information as required, aswell as measures against noncompliance.

Develop information systems to facilitatethe citizen’s access to water information

Two types of information systems should bedeveloped. One is on water quantity and qualityat both levels of river basins and administrativeunits, covering surface and groundwater. Theother is information on major water users orgroups of users and their pollution data, also atboth the river-basin level and administrative-unit level. In particular, systems of informationon toxic chemicals are urgently needed to preventwater pollution incidents. Organizations manag-ing these information systems should share theinformation with other governmental organiza-tions and disclose it to the public.

Improve public awareness of information disclosure

Due to weak participation in environmental man-agement, the public’s awareness of their right

of access to information is generally low. Chinashould raise awareness through public educationand campaigns so that the public can be moreactive in requesting water-related informationfrom relevant government organizations or enter-prises. This is essential to effective enforcementof laws/regulations on information disclosure.

PUBLIC PARTICIPATION IN WATER MANAGEMENT

As water management is related to the interests ofa wide range of stakeholders at different levels,including the general public, public participationis also crucial to good water governance. Publicparticipation is helpful to tailor policy to local sit-uations, to maximize the social welfare and utilityof resources use, and to protect vulnerable groups.It is an inherent part of the integrated model ofwater management, both as a driving force forother stakeholders to fulfill their duties and as apolicy instrument of water management.

Current Status of Public Participation

Traditionally, China had a highly centralizedbureaucratic system with a top-down governanceapproach and weak public participation. Overthe past three decades, with economic and admin-istrative reform deepened, public participationhas been increasing in public affairs. In watermanagement, China has taken a number of ini-tiatives to encourage and facilitate public partic-ipation in recent years.

In the Environment Impact Assessment Lawpassed in 2003, specific articles are provided onpublic participation in the formulation of gov-ernmental plans and the design of constructionprojects. The Administrative License Law passedin June 2004 acknowledges the right of the pub-lic to express their opinions in public hearings.In February 2006, a specialized law on publicparticipation—the Preliminary Regulation onPublic Participation in Environment ImpactAssessment—was promulgated by SEPA. It makes



organizational provisions for public participation,and clarifies the forms and procedures for publicparticipation in environmental impact assessment.In May 2006, the MWR issued the Regulationon Public Hearings for Administrative Permitsin Water Sector, defining the scope of admin-istrative permits for which public hearings arenecessary and making detailed stipulations onorganizing public hearings. The Regulationson Water Withdrawal and Collection of WaterResource Fees (2006) makes it clear that the pub-lic should be informed and public hearings shouldbe held when an application for water with-drawal is related to public benefits. It is believedthat the overall legal framework has been muchimproved for promoting and protecting the legalrights of the public as well as protecting state andbusiness secrets as defined by laws.

In recent years, the water users association(WUA), as an organization of water users, hasbecome a very popular form of public participationin water management in rural China. In October2005, MWR, NDRC, and the Ministry of CivilAffairs jointly promulgated the Guidance forFacilitating Establishment of Farmer Water UsersAssociation, specifying principles and proce-dures for establishing such associations andtheir role and responsibilities in relation to governmental organizations and water supplyenterprises. According to MWR, water users’participation in irrigation water managementhad taken place in 30 provinces/municipalitiesacross China by mid-2007. More than 20,000organizations of farmer water users, mostly inthe form of farmer WUAs, have been estab-lished, involving more than 60 million farmersparticipating in water management on behalfof end-users of water.2

Ever since the Friends of Nature, the firstenvironmental NGO in China, was establishedin 1994, the number of environmental NGOs hasincreased rapidly. A survey by the China Union ofEnvironmental Protection in 2005 found a total of2,768 environmental NGOs in China. Of these,1,382 were initiated by the government, 202 by

the public spontaneously, 1,116 by students, and68 were branches of overseas/international NGOs.The total staff of these NGOs amounted to224,000, with 69,000 working full-time (SEPA2006a). These environmental NGOs are playingan increasingly important role in environmentalprotection in China. Some of them participatein water management actively and make theircontributions to water resource conservation andwater quality protection. One good example is theChina Water Pollution Map, which is managed bythe Institute of Public and Environmental Affairsand used to disclose water polluters. Another is theactive participation of Green Earth Volunteersand other NGOs in the water resource develop-ment planning of the Nu (Nujiang) River.

Major forms of public participation in watermanagement in China are (1) public opinionsolicitation, where public opinions are solicitedon a certain issue in water management; (2) pub-lic hearings, where formal public hearings areorganized by government agencies in which rep-resentatives of various stakeholders can expresstheir viewpoints and raise questions over cer-tain water-related issues; (3) experts’ assessment/reviews of development plans and programs, whereprofessionals with expertise are involved in watermanagement; and (4) stakeholder coordination,where representatives of various stakeholderscommunicate and negotiate over water-relatedissues relevant to their interests. To date, experts’assessment/reviews and public hearings havebeen the most common in practice.


Public participation in water management inChina is still quite low. That can be attributedto several weaknesses; the major ones are sum-marized below.

Low awareness and capacity of public participation

Given the long tradition of government domi-nance in water management, neither govern-



ment agencies nor the public in general havestrong awareness of the potential for public par-ticipation in water management. Because of lackof experience and the low level of organization,the public in general has limited capacity for par-ticipation in water management. Consequently,most citizens do not participate at the earlystages until their quality of life has been seriouslyaffected. Once they feel compelled to partici-pate, their actions tend to be more aggressive,sometimes irrationally so. On the other hand,many government agencies have no intention toinvolve the public unless they are compelled bythe law or agencies at higher levels.

Incomplete legal system

The legal provisions on public participation inwater management are incomplete. First of all, insuch essential laws as the Water Law and Law onEnvironmental Protection, the citizens’ rights toaccess to information, to participate in decisionmaking, and to question and supervise govern-mental agencies, are not clearly stated. Second,there are few legal provisions for the public tochallenge government decision making throughlitigation or judicial review. Third, the provisions/regulations on the procedure and mechanismsof public participation are not detailed or clearenough, leading to distorted implementation. Forexample, although it is required that governmentagencies should respond to questions or appeals ofthe public, it is not clear how they should respondand what the result would be if they did notrespond.

Distorted operations

Due to lax legal requirement and weak super -vision, the activities of public participation areoften distorted in practice, deliberately or un -consciously. In such forms of public participationas public hearings and expert assessments, theprocedures for selecting representatives of stake-holders and experts are not followed strictly inpractice. Some organizers tend to select those infavor of the views or interests of the organizers.

Barriers for NGOs

The existing procedural and financial require-ments for registration of NGOs set by existingregulations pose significant barriers to develop-ment and participation of NGOs. For example,according to the Regulation on Registration andManagement of Civil Organizations promul-gated in October 1998, any civil organizationneeds to get the approval of a governmentalorganization or a quasi-governmental organiza-tion authorized by the government above countylevel before it can be registered as a legal organi-zation. For a nationwide civil organization, theamount of operational funds should be no lessthan 100,000 yuan, and for a local one, no lessthan 30,000 yuan. If there is already a civil orga-nization with the same or similar business in thesame administrative units, the new one would beregarded as superfluous and refused registration.Because of such requirements, some NGOs haveto be registered as for-profit companies that haveto pay taxes. Since participation of the NGOsspontaneously initiated by citizens is sometimesnot welcome by government agencies, NGOsinitiated by governmental organizations play amore important role in water management. How-ever, their representation of the public interest isnot always ensured.

International Experience inEnhancing Public Participation

Involving the public in water management is aglobal trend. Many countries, developed anddeveloping, centralized or decentralized, havetaken actions to enhance public participation inwater management.

As mentioned earlier, the EU signed the ÅrhusConvention enhancing public participation inenvironmental management. It identifies threepillars of public participation: (1) the public’sright to receive environmental information held bypublic authorities; (2) the right to participate froman early stage in environmental decision making;and (3) the right to challenge, in a court of law,



public decisions that have been made withoutrespecting the two aforementioned rights or envi-ronmental law in general. Following the conven-tion, the EU formulated the Water FrameworkDirective, requiring that all member states shouldencourage the active involvement of all interestedparties in the implementation of the directive, andin particular in the production, review, and updat-ing of river basin management plans.

In France there are institutional arrangementsfor public participation. At the river basin level, theriver basin committees consist of representativesof different stakeholders, including water users,experts, and professional associations (accountingfor 40 to 45 percent of the total), different admin-istrative districts (36 to 38 percent), and the cen-tral government (19 to 23 percent). The board ofdirectors of the water agency for each river basinalso consists of representatives of local governmentofficials, water users and experts, and central gov-ernment officials, each accounting for one-third.At the regional level, local water committees are setup for tributary subbasins. Of all members of eachcommittee, 25 percent are representatives of waterusers, owners of land along the tributary, and pro-fessional associations. At the local level, water fed-erations are set up in two-thirds of cities/towns.These federations consist of representatives ofgovernment, water users, and water companies.

In the United States, the EPA issued thePublic Involvement Policy in 2003 to providefor meaningful public involvement in all itsprograms and consistently look for new ways toenhance public participation. It requires thatEPA staff and managers should (1) seek inputsreflecting all points of view and carefully considerthe input when making decisions; (2) work toensure that decision-making processes are openand accessible to all interested groups; and (3) notaccept any recommendation or proposal with-out careful, critical examination. It also outlinesseven basic steps for effective public involvement:(1) planning and budgeting for public involve-ment activities; (2) determining who needs toor should be informed of, is interested in, or is

affected by a forthcoming action and perform-ing associated actions; (3) providing (if needed)technical or financial assistance to the public tofacilitate involvement; (4) providing informationand outreach; (5) conducting public consultation;(6) reviewing and using input and providingfeedback; and (7) evaluating public involvementactivities.

Public participation in such forms as a waterusers association is also very popular and playsan important role in water resource managementin many developing countries, including India,Mexico, and Brazil.

Recommendations for Actions to Promote Public Participation

As a public good with strong externalities and astrategic resource crucial to the economy, envi-ronment, and public life, water is closely relatedto the interests of various stakeholders, includingthe general public. To balance the interests ofvarious groups, and especially to protect thebenefits of vulnerable groups whose voices oftencannot be heard, China should make a greatereffort and take stronger actions to promote pub-lic participation in water resources management.Aiming at the existing weaknesses in terms ofpublic participation, and based upon experiencesof other countries, major recommendations foractions promoting public participation in watermanagement are summarized below.

Governments should be fully committed to and take gradual actions for promotingpublic participation

Public participation should be widely adopted asa complement to government actions in waterresource management, ranging from planning andpolicy making to law and policy enforcement andeducation. It should be emphasized that encour-aging public participation in public affairs is inline with China’s long-term development goal todevelop a more democratic and harmonioussociety. Given the low awareness and capacity of



public participation, China should work out a planof action for promoting public participation grad-ually. At the current stage, China should improveimplementation of existing policies on promotingpublic participation in water management, focuson increasing the involvement of experts, andenhance the participation of the public in waterissues that are directly related to their lives.

Building a strong legal foundation for public participation

The rights of public participation should beemphasized in relevant laws to empower thepublic. In such laws as the Water Law and Lawon Environment Protection, articles should beadded to explicitly grant rights of participa-tion in water management to the public. Threerights should be clearly defined: (1) the right ofaccess to information, (2) right of participationin decision making, and (3) right to challengewater-related decisions by the government. Spe-cific and detailed provisions should be made onforms, steps, and procedures of public participa-tion to avoid distortion in practice, either delib-erately or unconsciously. Provisions should bemade for administrative re-examination, litiga-tion, or administrative punishment against behav-iors infringing the aforementioned “three rights”granted by law in practice.

Involving the public in water management organizations

As recommended above, a representative watermanagement organization or commission shouldbe established at the river-basin level for eachriver basin. For the long run, membership in theorganization should be further extended to notonly central and local government agencies butalso representatives of various stakeholders, includ-ing water suppliers, water users, and the generalpublic. At the current stage, to facilitate partici-pation of water users, China should encourageand support the establishment of such organiza-tions as water users associations and involve themin water management.

Providing support for development and participation of NGOs

China should adjust the existing legal policy onNGO management, simplifying the formalities ofestablishment, lowering the requirements, and,especially, granting them independent status. Poli-cies should be made to encourage their involve-ment in water management in various forms.

In addition, to enhance the awareness andcapacity of citizens in public participation, apartfrom information dissemination activities targetedto adults, China should start by enhancing theeducation of schoolchildren on environmentaland natural resource management issues.

SUMMARY

Good water governance is composed of a seriesof elements. To address the serious challenges itis facing in terms of water management, it isvitally important for China to improve its watergovernance. Given the nation’s current situation,China needs to treat water as a strategic resourceand attach the same importance to it as to foodsecurity and energy security. To achieve goodwater governance, China should make sustainedefforts and initiate a wide range of actions. Themost fundamental one is that China should shiftto a new paradigm of water management, mov-ing from traditional fragmented management tointegrated water management. This requires achange in the mindset of both government offi-cials as well as the general public so that a consen-sus can be reached that water is a scarce resourcethat should be effectively allocated through mar-ket mechanisms. At the same time, access to cleanwater and a clean environment are basic rights ofthe people, and these rights should be protectedthrough legal provisions, regulatory measures,and enforcement.

To adapt to this new paradigm, China shouldimprove its legal system, organizational arrange-ments, and policy instruments.

In terms of the legal system, China should(1) continue to strengthen the legal framework



for water resource management and pollutioncontrol; (2) focus on improving compliance andenforcement, especially by strengthening publicparticipation; (3) incorporate in water-related lawsthe integrated approach to water management;and (4) grant legal status to river basin manage-ment commissions.

In terms of organizational arrangements, Chinashould (1) set up a more effective mechanismin the central government—possibly a WaterResource Management Commission, the high-est level of coordinating and policy-making bodyconsisting of leaders of various water-relatedministries/agencies and chaired by a vice premier,and/or a consolidated super ministry combin-ing the water-related functions of MWR, SEPA,MLR, and other ministries—with proper author-ity and capacity for coordinating different sectorsand provinces/municipalities to implement inte-grated water management; (2) establish a moreeffective mechanism for coordinating differentgovernmental organizations at central and locallevels; and (3) reform river basin managementcommissions (RBMCs). The river basin man-agement commission should consist of repre-sentatives of central government agencies, local

governments, water users/the public, and expertsto balance the interests of various stakeholders.

In terms of policy instruments, Chinashould combine various instruments, includingcommand-and-control measures, market-basedins tru ments, information disclosure, and pub-lic participation. In designing policies, marketmechanisms should be used more to improvethe efficiency of water use, while direct govern-ment intervention (such as subsidies or invest-ments) can be used in some areas for the sake ofequity and social benefits. Information disclo-sure and public participation in various formsshould be promoted to impose pressure on pol-luters and administrations to avoid temporallyand spatially biased behaviors, and to protectthe public from water-related environmentalincidents.

Endnotes1. For the details of water-related laws and regulations in

China, please see the background report prepared by theChina Institute of Water Resources and HydropowerResearch, 2007.

2. Source: http://www.chinacitywater.org/bbs/viewthread.php?tid=42076



Deepening Water Rights Administration and Developing

Water Markets

5

�

The allocation of water rights and the establishment of water markets canimprove the economic efficiency of water use in China and help resolve watershortages. China is encount ering growing difficulties in meeting its rapidlygrowing demand for water. At the same time, the environmental impacts ofoverexploitation of water resources are becoming increasingly apparent. It istherefore timely to consider options for improving initial water allocations,deepening the reform of water rights administration, and establishing watertrading in China.

This chapter focuses on water rights administration, water allocation, andwater markets. It discusses (a) the concepts behind and requirements for waterrights administration and water allocation, with insights from inter national expe-rience; (b) the water rights system in China, drawing on case studies and pilotprojects to illustrate good practice and key chal lenges; (c) the rationale forwater markets and trading; and (d) inter national experience in trades of varioustypes, and recent Chinese experience with both local and regional/inter-sectoraltrading. It concludes with recommendations.

THEORY OF WATER RIGHTS AND INTERNATIONAL PRACTICE

Water rights can be characterized in many different ways. Essentially, they arean entitlement (or a de facto “property right”) of an individual or entity to ashare of a common water resource. Beyond this, however, are the legal and insti-tutional arrangements surrounding the right. These arrangements define andgive meaning to a water right—both for the right holder, for other water users,for the government (as resource regulator), and for all those with an interest inwater resources (WET 2006). In this chapter, water rights are not used to referto legal ownership rights (which are typically held by the state, as is the case inChina). Water rights refer to rights to allocate, take, or use water.

Establishing a water right usually starts with a definition of the right of auser to abstract and/or use a certain amount of water from a water source,


such as a river, stream, pond, or aquifer. To effec-tively manage water resources, a complete waterrights system needs to explicitly specify theamount of water resources that may be extractedand consumed per unit of time, with a responsi-bility to return a certain amount of water—withsatisfactory water quality—back to the local watersystem. In other words, a water right includesthree components: (1) the amount of water thatmay be extracted, (2) the amount of water thatmay be consumed (or lost to the system), and(3) the amount of water that must be returnedwith defined quality to the local water system.These three components define the parameters ofa given water right.

The amount of water consumed can be moreaccurately measured by evapotranspiration (ET).ET refers to the transpiration and evaporation ofwater. Based on the water balance theory for abasin or an area, when rainfall and inflow andoutflow water remain unchanged, the controlof evapotranspiraton is the key to keeping thegroundwater table from dropping and keepingsurface water flow steady. Hence, the ET quota(for the basin) should become the core controlindicator and mechanism for the water rights sys-tem in the basin. Whether it is water rights allo-cation or control, water rights managementshould eventually be based on the allocation andcontrol of ET quotas. Putting it another way, theET approach focuses on measuring and manag-ing the scarce resource (water that is actually “con-sumed” or lost to the system and local users)rather than on water that is extracted but thenreturned to the system. Hence the ET approach ismore focused on managing actual water con-sumption, and can help improve overall watermanagement and system efficiency. The ETapproach is being tried in many countries: anexample from New Mexico in the United Statesis presented in Box 5.1.

An allocation process defines initial rights towater. Subsequently, these rights may change inaccordance with the rules that govern the water

rights system. Those rules may allow for govern-ment to amend the rights under certain circum-stances, or for individuals to trade their rights inaccordance with specified rules.

Finally, we note that formalized, statutoryrights are not the only source of authority thathelps regulate water use, particularly in rural areaswhere formal systems can become difficult toimplement for single enterprises/users. Box 5.2discusses other ways in which rights are definedand claimed.

Rationale for Rights-BasedManagement

A water rights system fundamentally involvesidentifying the total available resource and thenassigning the rights to that resource among dif-ferent groups (Hodgson 2006; WET 2006). Man-agement of water resources via a rights-basedsystem has several drivers:

• Security. Lack of security can act as a barrier toinvestment in water-dependent activities. Awater rights system can provide legal protec-tion for rights’ holders and certainty regardingthe water that will be available to them and theprocess through which allocations are made.

• Ecological sustainability. By defining the wateravailable to different parties, a water rights sys-tem sets a limit—a cap—on the total wateravailable for use. This cap can be set at a levelto ensure water abstraction is at an ecologicallysustainable level.

• Transparency. A transparent approach to theallocation of water provides confidence to allparties that water resources are being managedin a way that will deliver certainty, security,and ecological sustainability.

• Efficient water use. Clearly identifying the sharesavailable to different entities provides an incen-tive for investment in water conservation.

In addition, an effective water rights system pro-vides the basis for a number of different policy

D E E P E N I N G W A T E R R I G H T S A D M I N I S T R A T I O N A N D D E V E L O P I N G W A T E R M A R K E T S




B O X 5 . 1 Water Rights in New Mexico

In 2005, the southwestern U.S. state of New Mexico adopted new rules and regulations (R&Rs) withthe objective of establishing standards and procedures to administer the appropriation, allocation,and use of the state’s surface and supplemental groundwater.

The R&Rs define the five basic components of a water right: (1) point of diversion, (2) place of use,(3) purpose of use, (4) owner, and (5) quantity. However, “beneficial use” is now the basis, measure,and limit of a water right. Beneficial use is further defined as the direct use of water by man for ben-eficial purposes, including irrigation, municipal, commercial, industrial, domestic, livestock, fish andwild life, and recreational uses. For beneficial irrigation water use, a consumptive irrigation require-ment is defined as the quantity of irrigation water, expressed as a depth or volume, exclusive of effec-tive rainfall that is consumptively used by plants or is evaporated from the soil surface. Consumptiveuse is then defined as the quantity of water consumed during the application of water to beneficialuse. The quantity of water beneficially consumed depends on the requirements of a particular enter-prise and how it applies and consumes the water. The authorized diversion of water that is not bene-ficially consumed in the course of water use is not part of the allowable consumptive use allocation ofthe water right. The consumptive use by a crop (beneficial evapotranspiration) does not include deple-tions such as evaporation from canals, ditches, or irrigation fields during surface application, transpi-ration by vegetation along ditches, evaporation or leakage from irrigation water pipes, evaporationof sprinkler spray and drift losses, and evaporation of runoff and seepage from irrigated fields (non-beneficial ET). The volume of water right for irrigation use is set based on the calculation of beneficialET and other factors. The ET calculations are redone periodically to confirm that water is being usedbeneficially. The state is developing long-term data sets that will improve the process over time.

Return Flow Credit. An innovative and integral part of the water right includes a provision wherebywater users can receive a credit on surface water return flows, expressed as a percentage of the totaldiversion of surface water that has been applied to beneficial use and returned to the same surfacewater stream from which it was appropriated. A return flow credit does not entitle the user to increasethe authorized consumptive use amount. The return flow credit process is administered separately toensure that return flows meet certain water quality standards (state and national).

Much of the literature on water rights focuses narrowly on formal rights and ownership regimes.Hence, rights are often discussed only as legal instruments issued by state agencies, or in terms ofprivate/public and ownership/use distinctions. In practice, law is not the only source of authority thatassigns effective rights, particularly where logistical and administrative hurdles make it difficult forthe state to assign, monitor, and enforce individual entitlements.

Internationally, contractual agreements and rights asserted through user groups are widespread,particularly in irrigation schemes. Such arrangements can also be found in China. In some irrigationdistricts, for example, an agency will supply water to water user associations (WUAs) on a contractualbasis: contracts have no legal authorization, but do specify the rights and obligations of both theagency and WUAs. At the farmer level, membership in a WUA then confers an entitlement to receivea bundled water service, subject to payment for that service.

Such arrangements can work well, even though they lack legal force. In particular, allowing farm-ers a say in decision making through a WUA can strengthen their ability to assert a claim to waterproportionate to land area in systems where farm-level, volumetric monitoring is not possible. A keylesson is the need to improve participation and accountability, and thus strengthen rights.

B O X 5 . 2 From Formal Rights to Contracts and Claims

Note: Further information is available on the website http://www.ose.state.nm.us/.

Sources: Meinzen-Dick and Bruns 2000; WET 2007.

options for managing water demand (Perry et al.1997; Hodgson 2006; WET 2006). For example:

• Government-facilitated reallocations. A waterrights system provides greater transparencywhen the government chooses to reallocatewater among water users. This in turn canprovide confidence as to the consequences ofthe reallocation.

• Reducing total water allocation and use. Regula-tions can be used to reduce the water availableunder water rights, providing a fair and trans-parent mechanism for reducing total wateruse.1

• Pricing mechanisms. Clearly defined water rightscan provide an equitable basis for levying watercharges, including both service charges andresource management fees.

• Water markets and trading of water rights. Well-defined water rights are an essential prerequisitefor the establishment of a water market.

Requirements for a Water Rights System

A water rights system depends on clear, certainentitlements to water. For a system to deliver thisrequires that all relevant water and water use bemanaged within the regulatory system. Alloca-tions need to be based on a planned approach,recognizing the entirety of the resource beingallocated, as well as both current and future wateruse requirements. The allocations then need tobe regulated at the water user level. To do this, awater rights system typically relies on (a) a plan-ning mechanism to identify the available waterresource and demands and define the total vol-ume available for allocation—usually this is viasome form of water allocation plan; and (b) a reg-ulatory mechanism to enforce the allocationsmade under the water allocation plan, usually inthe form of a licensing system.

This, in turn, requires that:

• Water allocation plans should be based onhydraulic boundaries—natural water basins or

aquifers—rather than political or administra-tive boundaries.

• All water sources should be managed in anintegrated way, including both surface andgroundwater.

• Total control over water use is maintained,including regulating water abstraction, con-sumption, and discharge volumes wherenecessary.

Due to the inherent variability in water resources,water rights will often assign a share of the avail-able resource as opposed to a fixed volume.2 Theactual volume available to the right holder willvary depending on climatic conditions and thevolume available at a particular time (in the reser-voir, aquifer, or river). Consequently, water rightsneed to be allocated both in terms of the long-term right to water (via the water resourcesallocation plans, abstraction permits, and watercertificates described above), and on an annual orseasonal basis, depending on actual availability ina given year. Annual entitlements to water wouldnormally be a function of the long-term rights towater and the actual water available.

The process of determining annual water sharesis critical to providing certainty to water users.Where this process is based on a pre-set formula,water users can be confident their share of thewater resource is allocated in a consistent andtransparent manner. Box 5.3 describes the annualand longer-term basis for determining allocationsin Israel, where volumetric quotas are the princi-pal instrument for ensuring a balance betweendemand and supply.

Water rights systems also depend on robustregistration systems for recording water rights,sound monitoring systems to ensure water userstake water only in accordance with their entitle-ments, and water accounting and reporting sys-tems to provide transparency and confidence thatthe agreed management regime is being imple-mented. Systematic registration and monitoringof rights is a major challenge in many countries,and particularly so in China because of the num-bers of water rights involved. Box 5.4 compares



rural groundwater management approaches inAustralia, the U.S., and Europe.

Water Allocation and Environmental Flows

The granting of water rights is inherently linkedto the process of providing for in-stream environ-

mental water requirements (commonly referredto as environmental or ecological flows). By deter-mining how much water can be abstracted bywater users, a water rights system—whether delib-erately or by default—will determine the volumeof water left for in-stream environmental pur-poses (WET 2007). The water resources alloca-tion plan then is the key regulatory instrument for



The Middle East is one of the most water-scarce regions of the world, with an average per capitawater availability of less than 1,000 m3. Within the region, each country has to struggle with a fun-damental challenge: how to safeguard the interests of agricultural users whilst meeting the needsof domestic and industrial consumers. Israel, with a per capita water availability of less than 300 m3,has arguably gone furthest in promoting water conservation and reallocation, based on the rigorousassignment and monitoring of quota-based rights.

As in China, Israel’s 1959 Water Law defines water resources as public property subject to controlby the state, with centralized powers for allocating water between competing uses. Specifically, theamount of water allocated between broad sectors in each calendar year is fixed by a water commis-sioner with wide-ranging powers, while water use within sectors is controlled through permits andpricing. All users in Israel require a license, which is issued annually.

Over the last two decades, Israel has gradually reduced annual allocations of freshwater to agri-culture from over 70 percent of total allocations in 1985 to 55 percent in 2005. The change in waterallocation has been possible for two main reasons. First, the country’s economy is industrializing andthere is waning dependence on agriculture. Second, there is rigorous enforcement of sectoral quo-tas and technical standards, with incentives to avoid waste within quotas through pricing.

B O X 5 . 3 Water Allocation Priorities in the Middle East: the Case of Israel

The Asian debate on how to create an effective groundwater management regime has been swayedby success stories from Australia, the United States, and Europe. Recommendations have thereforefocused on the assignment and monitoring of clear water rights through well licensing. A majorproblem in transferring such lessons to China, however, is the number of people involved.

In a typical groundwater district in the U.S. or Australia, the total number of farmers is probablyless than a thousand. In a comparable area in China, there may be 100,000 farmers, each withdraw-ing small volumes of water. Such users might be exempt from licensing in many countries. In theMurray-Darling basin in Australia, for example, permits are mandatory for all groundwater users,except those withdrawing water for domestic or livestock needs, or for irrigating small plots of 2 haor less. A similar exemption applied on the North China Plains would exclude over 95 percent ofgroundwater irrigators.

What are the implications? In groundwater-dependent northern China, “thick and deep”approaches to rights-based regulation may only be practical in some well-defined, strategicallyimportant areas. In other areas, alternatives may have to be considered. One approach, currentlybeing piloted, is to issue volumetric licenses to groups of groundwater users organized as WUAs.Water bureaus would be responsible for setting volumetric caps, but users themselves would moni-tor and enforce compliance, with penalties for above-quote abstraction and incentives for below-quota abstraction.

B O X 5 . 4 Registering and Monitoring Users: International Comparisons with Groundwater Management

Sources: Allan (2001); Cornish (2004); Zhou (2006).

Sources: Shah et al. 2003; Calow et al. 2006.

determining the volume of water available forconsumption, as well as for prescribing the envi-ronmental flows that will be maintained in awatercourse or aquifer.

The first step in the water allocation processshould involve the division of water between envi-ronmental and human (consumptive) needs. Thewater set aside for human needs can then besubdivided amongst different regions, sectors, orindividuals as required. The water set aside for theenvironment may be specified as a clearly defined“water right,” held by some entity on behalf of theenvironment (as is now the case in some jurisdic-tions in Australia), or may simply be the differ-ence between the total resource less that allocatedfor consumptive purposes. In South Africa, a spe-

cific water reserve is set aside for environmen-tal purposes. In Mexico, a statutory definition ofminimum flows for rivers is defined (Hodgson2006). Box 5.5 provides a summary of how envi-ronmental flows could be defined and allocated inChina based on international experience.

The Need for Public Participation

Most modern water codes also emphasize the needfor user participation in developing and approvingplans and monitoring compliance. This is becausethe public is the primary stakeholder and mainbeneficiary of an effective water management sys-tem. The core of public participation is access toinformation, which is discussed in chapter 4. The



Flow regimes are important to riverine health and freshwater biodiversity for several reasons. Forexample, (a) flow is a major determinant of the physical habitat in streams and rivers; (b) river specieshave evolved life cycles in response to natural flow patterns; and (c) flows maintain natural patternsof longitudinal and lateral connection. To protect freshwater biodiversity and maintain environ-mental services, it is therefore important to mimic components of natural flow variability. How canthis be achieved?

A methodology for defining and providing environmental flowThe following steps should form part of the water resources allocation process. They are designed toidentify the key assets, the flows they depend on, and management options to deliver those flows:

• Step 1. Identify the key river assets: these may be ecological, social, or economic, and can includespecific species (e.g., a key commercial fishery) or habitats (e.g., an important wetland).

• Step 2. Identify the constraints on the asset: determine whether it is changes to the flow regimeor other factors (e.g., pollution) that are affecting the asset.

• Step 3. Determine the key parts of the flow regime (e.g., low flows, summer flows, floods, etc) thatare important to the asset. Determine how these flows have been, or will be, affected by waterresources development. Assess the extent to which this change is likely to impact on the asset,based on analysis of historic flow patterns in the subject river or similar rivers.

• Step 4. Assess the capacity to alter water resources management rules to provide for the flowsidentified as important to the key river assets. Set environmental flow objectives, and developmanagement options to meet these objectives.

• Step 5. Establish monitoring requirements to assess whether the environmental flow objectivesare being achieved.

Management options for delivering environmental flowsManagement options can include a combination of: capping total water abstractions (i.e., total num-ber and volume of permits); setting water sharing rules to decide the water available for each user(including the environment) in each year; setting specific operational rules that require reservoir oper-ators to release water at certain times; and providing a specific allocation of water for the environment.

B O X 5 . 5 Determining and Defining Environmental Flows

Source: WET 2007.

success of public participation in water resourcemanagement in the form of water user associations(WUAs) has been demonstrated in a number ofpilot projects in China, including the WorldBank’s Water Conservation Project.

DEVELOPMENT OF WATER RIGHTS IN CHINA

Legal and InstitutionalArrangements

Ownership of water resources is addressed inChina’s Constitution and the Water Law 2002.These state that water resources are owned by thestate on behalf of the whole people, with owner-ship exercised by the State Council on behalf ofthe people.

The Water Law 2002 is the key law dealingwith water rights. It provides a comprehensiveframework for water planning and for the allo-cation of water rights. The law includes provi-sions on water resource ownership, rights ofcollectives to use water, water abstraction rights,water resource planning, water resource devel-opment and utilization, water resource conser-vation, water resource allocation, water use andsavings, dispute settlement, and administrativeresponsibilities.

The Regulation on Water Abstraction Permitsand Water Resource Fee Collection (the WaterPermit Regulation) then provides a framework forgranting and managing water abstraction permits.Water permits are subject to the provisions of theLaw on Administrative Licenses.

The Ministry of Water Resources, on behalfof the State Council, has the primary responsi-bility for water resources management. Under theWater Law, MWR is responsible for managingwater resources development, utilization, saving,conservation, and flood prevention. It is respon-sible for the preparation of water plans (regionaland basin, flood management, water allocation,water protection, etc.) and for the management ofwater abstraction permits.

The River Basin Management Commissions(RBMCs) are authorized by MWR to managewater resources in their respective river basins.Water resources bureaus of local governmentsabove the county level are responsible for waterresources administration within their politicalboundaries.

Water Resources Allocation,Abstraction Permits, and Certificates

The Water Law 2002 describes the requirementsfor water resources allocation plans. Allocationof water is via both basin and regional waterresources allocation plans, through which wateris allocated among administrative regions. Thus,water in a transprovincial river is allocated amongprovinces. Provincial-level plans allocate wateramong prefectures, and prefecture-level plansallocate water among counties. Departmentalguidelines on water resource allocation plans arecurrently being prepared.

The nature of the allocation to regions varies;in the northern part of China, it typically consistsof an annual average water consumption volume;in the southern part of the nation, it is typically anannual water abstraction volume. In some cases inthe north, plans specify required end-of-systemflow requirements. In some cases in the south,allocation is done by flow rate in the dry season.In addition to regional allocations, plans may alsoallocate water to particular sectors (agricultural,industrial, etc). The allocated volume may be forboth groundwater and surface water.

Access to water resources by an individual orunit is regulated by a water abstraction permit-ting system. By law, all water abstractions requirea water abstraction permit. There are certainexemptions, such as for livestock and domesticpurposes in rural areas and rural collectives tak-ing water from their own ponds and reservoirs.

The permitting system is governed by a regula-tion issued by the State Council in April 2006.The water abstraction permit regulation providesa framework to be applied by all provinces in man-



aging water abstraction permits. The regulationprovides details on the process for granting andmanaging permits. In general, a water withdrawalpermit is valid for 5–10 years. The regulationrequires that issuing water withdrawal permitsshould be based on approved water resources allo-cation plans and allocated water quotas.

Within irrigation districts, an abstraction per-mit for the whole district is usually held by thegovernment agency responsible for administer-ing the district. Farmers are then supplied theirshare of the water available to the irrigation dis-trict under the permit. In some areas in northernChina, a district plan is developed that identifieseach farmer or village’s share of the available water.In most instances farmers do not hold any form ofindividual entitlement and allocations are madebased on land area. In a few pilot areas trials havebeen conducted on granting water certificates tofarmers that identify each farmer’s share of theresource. This is coupled with a water ticket sys-tem, under which farmers pre-pay for the waterthey want in a particular year, season, or watering.A farmer is allowed to purchase water tickets up toa limit, based on their certificate volume and sea-sonal availability (see Boxes 5.6 and 5.11).

Annual Allocation of Water Supplies

In addition to the process for allocating long-term rights to water, a separate but connectedprocess exists for determining the actual volumeavailable for abstraction (or consumption) dur-ing any given year.

At the basin and region level, the annual allo-cation of water rights occurs via the annual waterregulation plan. This plan is usually preparedbased on the available and/or predicted water sup-ply for the year. Some water regulation plans,such as that for the Yellow River, may be adjustedduring the year to bring the plan into line withactual water conditions. In practice, annual regu-lation plans are not prepared for many rivers, par-ticularly in southern China, where water resourcesare relatively abundant.

Holders of water abstraction permits arerequired to submit an annual water use plan totheir administering authority. This is used as thebasis for preparing an annual water abstractionplan, which dictates the actual volume availableto the permit holder for the year. At the irriga-tion district level, annual or seasonal plans maythen identify the actual water available that yearand when it will be delivered. Some level of con-sultation is usually undertaken with farmers.Increasingly this consultation is via newly estab-lished water user associations. Again, this processis generally limited to the drier, northern parts ofChina.

Structure of Water Rights in China

Drawing on the above, water rights in China canbe described in terms of three different levels ofrights (WET 2006):

• At a regional level. Water resources alloca tionplans allocate available water within a ndbetween different provinces, prefectures, andcounties, as well as between different sectors.

• At the abstractor level. Rights are assigned toindividual abstractors.

• At the village or farmer level. Rights to a shareof the water available within an irrigation dis-trict are shared among farmers, households, orvillages.

Further, water rights at each of these levels exist interms of both long-term and annual or seasonalrights to water.

Water Rights Management

The Water Law 2002 requires that water use bemetered and subject to volumetric charges (waterresources fees). Currently, domestic and indus-trial water users in most parts of China are sub-ject to water resource charges based on quantitiesused. Measurement and monitoring facilities forregulation and enforcement are weak. There is



still a significant amount of water use that is notmeasured, and water for irrigation use is largelymeasured by the area of irrigation land, not the quantity of water withdrawn or consump-tively used. The registration and measurementof groundwater abstraction is particularly limiteddue to the large number of dispersed wells(Lohmar et al. 2003; Shah et al. 2004; Wanget al. 2007b).

While the water rights and discharge controlsystems are well-advanced in terms of issuingrights, there are major deficiencies in regard tocontrol and enforcement. In many cases waterrights are paper documents not effectively usedin water resources management because of inad-equate control and enforcement of water use anddischarges.

WATER RIGHTS REFORM IN CHINA: CASE STUDIES AND PROJECT INSIGHTS

Water rights systems typically evolve to meet therequirements of the local conditions. In particu-lar, it is clear that the most detailed and robust sys-tems inevitably develop in those regions wherewater is most scarce, and where there is greatestpressure on the resource. For these same reasons,the allocation of water rights in the Yellow Riverprovides perhaps the most sophisticated exampleof the application of a water rights system inChina (WET 2006). Box 5.6 summarizes howwater is first shared among the 10 provinces andautonomous regions that take water from theYellow River and, using Inner Mongolia as anexample, describes how shares are assigned withinthe region, and to irrigators in Hangjin IrrigationDistrict in particular.

In addition, a growing number of projects arecontributing to water rights reform and lessonlearning. Although each initiative has its uniquecharacteristics, many share common points,including the assignment of water rights to spe-cific institutions or groups; the transfer of fundsbetween suppliers and users of water; the use of

innovative approaches (including water ticketsand marketable quotas) to implement policies;the use of consultation (in some cases) betweenthe various water users and institutional partners;monitoring and evaluation procedures to deter-mine allowable withdrawals; the use of trades andmarkets to help promote more efficient use ofscarce water supplies; and the constant need forinstitutional or legal changes to permit these sys-tems to develop.

A recent development is a shift from focus-ing on water extraction to water consumption.Advances in remote sensing and geographicinformation system (GIS) techniques have madeit feasible to manage irrigation water resources interms of the amounts of water actually consumedby crops, trees, and weeds for evapotranspiration(ET) rather than manage total water withdrawalsfrom surface and groundwater sources. Theportion consumed through ET is the “real” con-sumption that is lost and not available for usersdownstream or from the aquifer. In contrast, theportion that returns to the surface or groundwatersystems is still available for other users downstreamor from the aquifer, unless its quality has deterio-rated to the point that it is not suitable for eco-nomic use, in which case the losses are “real” losses.

The ET approach may be particularly usefulin China. In its water-scarce areas, it is importantto manage water resources in terms of net waterconsumption (i.e., ET). Past management inChina based on water withdrawals has beenshown to be unsuccessful because even with thesame water withdrawal, the saved water fromwater conservation may be used to irrigate moreland; that is, more water is consumed with lesswater returning to the local water system. In con-trast, the ET approach focuses on actual waterconsumption, and encourages farmers to reducewater consumption. For example, farmers canreduce evaporation by reducing waterloggedareas, irrigating when evaporation is lowest (atnight instead of during the day), using moisture-retaining mulches, and replacing open canals andditches with pipes. Where excessive fertilizer



and pesticides runoff is a problem, the ETapproach will encourage farmers to reduce theirchemical use and runoff, since return flows thatare unusable downstream will be deducted fromindividual ET quotas.

One such ET-based initiative is the Hai BasinIntegrated Water and Environment Manage-ment Project, which is discussed in Box 5.7.

A key element of this project is the distinctionmade between consumptive and nonconsump-tive water use, and the practical implications thishas for the definition, allocation, and monitoringof rights. As noted in Chapter 3 (Box 3.4), thedistinction is a vital one in any demand manage-ment strategy, since only those savings in con-sumptive water use—specifically, nonbeneficial



In 1987, the State Council approved a water resources allocation plan—the Plan of the Available Sup-ply for Water Distribution—for the Yellow River to coordinate the water demands of the multipleusers and regions within the basin. The Yellow River Basin Management Commission is charged withsetting minimum flow requirements for the river at provincial boundaries and allocating relativeshares of available water to 10 provinces and regions.

In a normal year, Inner Mongolia receives 5.86 billion m3 out of a total flow of 37 billion m3. In adrought year, however, shares across provinces are reduced. Ongoing shares within any given year aredetailed in an Annual Regulation Plan based on the Annual Allocation Plan for the basin (publishedby the commission), which incorporates an annual water forecast and annual reservoir storage andreservoir “balancing.” In addition, the Regulation Plan provides for short-term adjustments.

Water rights of abstractors in Inner MongoliaWater abstractors within Inner Mongolia require water abstraction permits, administered in accor-dance with the Regulation on Water Abstraction Permits. The largest of these are for Hetao andHangjin irrigation districts, held by the Inner Mongolia Yellow River Irrigation Management Bureau(within the Water Resources Department of Inner Mongolia). Permit No. 1 for Hangjin Irrigation Dis-trict (HID) allocates 410 million m3 to HID, including a mandatory return flow of 35 million m3 per year,though actual diversions vary according to available shares.

Water sharing within Hangjin Irrigation DistrictCurrently there are no formal long-term rights granted to water users within the district. Rather,annual and seasonal plans are implemented through an iterative process of scrutiny and adjust-ment, with demands articulated through WUAs adjusted, as necessary, to account for supply restric-tions imposed by the YRCC. The allocation process combines bulk volumetric charging to WUAs witharea-based charging for farmers. Water User Associations purchase water tickets on behalf offarm members in advance of each irrigation, as part of what is both a preordering and prepay-ment system.

A pilot project within HID has defined water entitlements to the WUA level—the lowest volu-metrically monitored points on the system. Allocations to WUAs can now be formalized by grantingwater certificates to each WUA. The annual-seasonal allocation process, and the sale of water tick-ets to farmers, would be undertaken within this framework. Once all stakeholders have gained expe-rience in operating the rights-based system, water trading between WUAs can be contemplated.

LessonsFrom a water rights perspective, the process of allocating water within the Yellow River demon-strates clearly how inter-connected the different management arrangements are. The water enti-tlement of a farmer within HID is a function of the rights held by the district as a whole, and of InnerMongolia’s share of the available water from the Yellow River. A robust water rights system dependson an integrated and consistent approach to managing these water rights, at all levels.

B O X 5 . 6 From River to Farm: Water Rights and Allocation in Inner Mongolia Water Resources Allo-cation Plan for the Yellow River

Source: WET (2007).

ET and flows to nonrecoverable sinks—represent“real” water savings. A similar ET-based approachhas also been adopted in the World Bank–fundedMWR Water Conservation Project to reducethe current over exploitation of groundwater onthe North China Plain (see Foster and Garduno2004).

In the Song-Liao River basin, pilot projectsaimed at reforming and modernizing the waterrights regime have also been implemented at thewatershed level. Here, the Song-Liao Basin Com-mission selected the Daling River basin and theHuoling River basin within the watershed as sitesfor pilot projects for allocating water rights. Theinitial allocation of water rights considers currentwater use and future water needs, and determineswater quotas for each province based on individ-ual water use quotas to promote an equitable allo-cation. Somewhat unique to this case in Chinawas extensive consultation and coordinationamong the various authorities involved in waterresources management and explicit considerationof maintaining sufficient stream flows to supportaquatic ecosystems. Water allocation plans weredeveloped at the basin level with active participa-tion of the provincial governments.

Comprehensive reform of water rights hasalso occurred in the Heihe (Black River) basin inGansu, with Zhangye City selected by MWR asthe first pilot project in China to build a water-saving society and establish new systems of waterrights administration. This initiative is discussedfurther in Box 5.12.

BASICS OF WATER MARKET AND TRADING

The Advantages and Disadvantagesof Market Allocation

Growing water scarcity and increasing differ-ences in water values among users haveprompted growing interest in water markets as ameans of improving water allocation and reduc-ing scarcity costs. The theoretical foundationunderlying water trading is based on the differ-ence in the economic value of water in differentuses. When water availability is insufficient tocover all water needs, water markets with legallydefined, market-tradable rights allow for the pur -chase or lease of water-use rights among users.The result is to reallocate water from low-value



The Hai Basin Integrated Water and Environment Management Project has been under implemen-tation since 2002. It is managed by the Chinese government with the assistance of the World Bankthrough a Global Environment Fund (GEF) grant. The project is piloting water resources planningand management through the allocation of ET quotas. The objective is to increase the volume andvalue of agricultural production in the demonstration areas, while not exceeding the ecologicallysustainable withdrawal limits. Because of current excessive withdrawals of water resources in thebasin, this amount will be less than the current ET and will be gradually lowered until enough wateris released to maintain environmental functions and avoid groundwater depletion. This goal canonly be achieved by reducing nonbeneficial and low-beneficial ET, and raising crop water produc-tivity (yield and value of production per unit of ET).

The project uses satellite remote sensing techniques to measure, target, and monitor ET at thebasin level and at lower levels all the way down to individual farm plots. Once the complete moni-toring system is in place and functioning, it will be possible to implement a water trading system toimprove the economic efficiency of water use, while at the same time ensuring that water usage issustainable and not overexploiting the water resources. The Hai basin project also establishes that acooperative coordination mechanism among governments and departments at different levels is cru-cial for implementing ET-based water rights administration.

B O X 5 . 7 Defining and Allocating Consumptive Water Rights in the Hai Basin

Source: Development Research Center of the Ministry of Water Resources 2007.

uses to higher-value uses, with both buyers andsellers better off than before. In this way, markettransfers can raise the average productivity ofwater within a sector (typically agriculture), aswell as provide a mechanism for reallocatingwater between sectors (from agriculture tourban-industrial users). Water markets shoulddefine the three central components of waterrights: water extraction, actual water consump-tion (an ET measure), and return flows. Notethat most sellers of water rights are not con-cerned with how water is actually used by the“buyer” of the water right (that is, consumed orjust passed through the system), since the neg-ative impacts will occur further downstream andwill not, in most cases, affect the initial seller ofthe water right.

When properly measured and defined, mar-ket transfers of water have a number of potentialbenefits over alternative allocation mechanisms.In contrast to allocation through administrativeorder, for example, market allocation guaranteescompensation to users, with decisions based onindividual (or group) assessment of the value ofwater in alternative uses. In contrast to waterpricing, a system of tradable rights is also volun-tary: only those entering the market will pay (orreceive) additional charges associated with thepurchase (or sale) of entitlements. The realloca-tion of water then becomes a matter of voluntaryand mutually beneficial agreements between will-ing buyers and willing sellers (Dinar et al. 1997;Chong and Sunding 2006). The voluntary natureof water trades serves to safeguard sellers (forexample, farmers) who always choose to stay outof the market to ensure they will not be worse offas a result of the trade.

Market transfers also have some disadvan-tages, however, related to the specific character-istics of water and the potential for market failure.These include defining water rights, especiallywhen flows are variable; measuring water flows,especially in systems where monitoring is weakor absent; enforcing withdrawal rules; properlyaccounting for actual water consumption (a mea-

sure of ET—a physical “loss” from the watersystem); investing in the necessary conveyancesystems; and the need to account for external or“third party” impacts, such as those that mightoccur if return flows from irrigation are soldwithout reference to downstream groundwaterusers (Dinar et al. 1997; Cornish et al. 2004;Perry 2007).

Water Rights and Market Types

Internationally, the most common types of mar-ket transaction occur through informal “spot”markets in the absence of formally defined rights.These usually involve trading water among simi-lar uses: the sale or exchange of irrigation “turns”in a rotational system, for example, or the sale ofwater by the owner of a groundwater borehole tonearby farmers (Perry et al. 1997).

Tradable water rights, on the other hand, arebased on an initial specification of rights deter-mined by available supply, and specification ofthe conditions under which rights may be traded.Volumetric rights can then be assigned to indi-vidual beneficiaries within sustainable limits, withrights holders allowed to buy or sell either theright itself (a market in tradable rights), or buyand sell the water only (a lease market) subject tocertain rules. In both cases, the initial specificationof rights—and their subsequent monitoring andenforcement—should ensure a balance betweendemand and supply, with specified assignmentsfor social and environmental uses.

It follows that tradable water rights are morelikely to support inter-sectoral and/or inter-regional transfers. However, such transfers mayalso have to meet stricter preconditions. Forexample, restrictions may apply to ensure thatcertain minimum flows in a stream or river aremaintained for environmental or recreation rea-sons, or to protect the rights of other users whomay be affected by a transfer. The volume ofreturn flow (extractions for use minus the actualET consumption) is a key variable. For this rea-son, most formal markets have been confined toindividual basins or service areas.



INTERNATIONAL EXPERIENCE WITHWATER MARKETS

Internationally, tradable water rights are still ararity. Most countries facing severe water scarcity(for example, the case of Israel in Box 5.2) haveopted instead for administrative systems based ontop-down allocation plans and licensing arrange-ments. Nonetheless, interest in water markets isgrowing, and experience in countries such as theU.S., Spain, Australia, Mexico, and Chile indi-cates that market transfers can generate signifi-cant economic benefits (Saleth and Dinar 2004;Chong and Sunding 2006).

The water-scarce western United States ishome to some of the world’s most active watermarkets (Landry and Anderson 1997). Waterrights regimes vary between states but, in mostcases, are tightly controlled and regulated. Col-orado, for example, has a strict system of waterrights based on the prior appropriation doc-trine that is legally enforced, transparent, andprovides all users—favored or otherwise—withinformation for planning their operations.Market transactions are embedded in a legal

and institutional framework that carefully reg-ulates external effects, with the Office of theState Engineer investigating all aspects of pro-posed developments and transfers. Moreover,each of the seven water basins in Colorado hasits own specialist Water Court, dealing exclu-sively with water issues and water disputes.Only consumptive rights can be sold, and onlyunder the condition that no injury is done todownstream users (Perry et al. 1997; Marinoand Kemper 1999).

While such arrangements provide safeguardsfor third parties, obtaining authorization tochange water use is often a lengthy and costlypro cess. An exception is the Colorado BigThomp son Project, where relatively unrestrictedtrading of water rights is permitted (Box 5.8).Because of significant variations in water demandbetween areas and users, the Northern ColoradoWater Conservancy District established a watermarket allowing rights to be traded on a perma-nent basis, with a central registry for recordingownership and ownership transfers. In this case,rights are defined as diversions rather than asconsumptive uses; downstream users who may



The C-BT Project represents one of the most active and well-established water markets in the west-ern U.S. The Northern Colorado Water Conservancy District (NCWCD) is granted by contract the per-petual right to use all water made available by the construction and operation of the C-BT Project.The NCWCD has the authority to allocate, reallocate, and set assessment rates on water allotmentcontracts. Permanent ownership and transfer of water allotments can only be approved for benefi-cial uses within the boundaries of the project area.

Each year, the NCWCD Board of Directors determines an “April Quota,” which sets the maximumamount of water available from project supplies for the current year based on hydrologic conditionsand anticipated water demand. This may be adjusted according to hydrologic conditions during thecourse of the year. Individual water users obtain water rights through allotment contracts signedwith the district. Annual fees are collected on each allotment to cover the fixed and operating costsof the project.

Since the early 1960s, water within the district has been actively traded among agriculture, munic-ipal, and industrial uses. The success of the C-BT water market can be attributed to the establishmentof clearly defined water rights, the high reliability of supply, its use as a supplemental “new” supplyfor the region, a well-developed distribution system, the large number and diversity of market par-ticipants, and, especially, to institutional rules and administrative procedures that minimize transferrestrictions and costs.

B O X 5 . 8 The Colorado–Big Thompson (C-BT) Project

Source: Michelsen 1994; Marino and Kemper 1999.

benefit from return flows are not entitled tocompensation if their water rights are affected bytrade.3 This arrangement lowers the transactionscosts of trade as third-party impacts are not con-sidered, but raises the wider question as to whensuch impacts can and cannot be advantageouslyignored.

The United States has also accumulatedsubstantial experience in water banking, bothtemporary and permanent. Water banking isan organized water trade conducted through aclearinghouse to facilitate transfers within agiven service area. Idaho’s water supply bankwas established in 1980 to facilitate short-termleasing or renting of water (Box 5.9).

Elsewhere, Chile has been a leading interna-tional example of the use of pro-market policiesfor water resources management (Bauer 1997).Chile’s National Water Code of 1981 establisheda system of water rights that are transferableand independent of land use and ownership—essential preconditions for the development offormal water markets—with transfers subject tothe general system of real estate title registration(Bauer 1997). Water rights are defined as perma-nent (from unexhausted sources) or contingent(temporary, from surplus water), and as con-sumptive and nonconsumptive.

The Murray Darling basin in southeasternAustralia began allowing the market transfer ofwater entitlements in the 1980s in response togrowing scarcity and variable water distribution.

The process began with the formalization ofhistoric rights based on patterns of land use,with each riparian assigned an entitlement, orentitlements, specified in terms of both volumeand security. Variations in the security of enti-tlement help ensure consistency with the erraticnature of water availability. The system is com-plex, allowing for the possibility to buy and sellhigh-, medium-, and low-security entitlements,and provisions for both seasonal and permanenttransfers (Box 5.10).

EMERGING EXPERIENCE OF WATERTRADING IN CHINA: CASE STUDIES

The trading of water rights is just beginning inChina. Current water laws have few provisions onwater rights transfer, and provisions on aspectssuch as transfer conditions, procedures, and ben-eficiaries of transfer are incomplete. For example,MWR’s Opinions on Water Rights Transfer,issued in 2005, sets out some fundamental prin-ciples to guide market arrangements, but provideslittle detail on how tradable rights should bedefined and managed in terms of consumptiveand nonconsumptive uses, return flows, and pro-tection for third parties.

Although not strictly a market in tradablerights, pressure to release water for growingurban demands is driving ad hoc experimenta-tion in inter-sectoral and/or regional transfers.For example, the cities of Dongyang and Yiwu in



The Water Supply Bank manages natural stream flows and groundwater and is administeredthrough the Idaho Department of Water Resources (IDWR). It substitutes for a water rights transferprocess by removing some of the assessment requirements of transfers. Consequently, access towater sought through the Water Bank is generally provided within a couple of weeks, as opposedto several months through a water transfer. The IDWR keeps a list of water rights available for leaseon the Internet; interested parties can call the IDWR to see if water may be available to them.

Water users who in any given year have rights to more water than they need can put the excessstored water or natural flow rights they will not use in the bank. From there, the water can be soldor leased to people who do not have enough to meet their needs. This system helps make excesswater available to other users for irrigation or other authorized uses. Water from the Water SupplyBank has also proven valuable in providing stored water for downstream salmon recovery efforts.

B O X 5 . 9 Idaho Water Supply Bank

Zhejiang Province signed China’s first intercitytrading agreement under which Dongyangagrees to transfer a total of 50 million m3 ofwater each year to fast-growing Yiwu at a priceof RMB 200 million yuan. Dongyang will bearthe cost of water reservoir maintenance, andYiwu will pay a management fee based on actualwater supply at a rate of RMB 0.1/m3 in addi-tion to constructing the water conveyance infra-structure. However, such arrangements do notconstitute an exchange of clearly defined trad-able rights. Rather, transferred water is assumedto be owned exclusively as a private good bythe donor city, or water resources administra-tion, with trade occurring via closed contractualagreement rather than a market with manypotential buyers and sellers. In this instance,specification of the transfer as a fixed volumerather than a share of available supply has led to

problems. Dongyang was obliged to transfer50 million m3 of water to Yiwu even duringdrought, adversely affecting agricultural pro-duction and generating strong opposition fromlocal people.

Similar types of transfer have also been bro-kered between irrigation districts and down-stream urban-industrial users. For example, theInner Mongolia Water Resources Departmenthas initiated pilot projects in which industries areencouraged to invest in water-saving facilities inagriculture and, in return, receive the water fromleakage and waste reduction in irrigation. Underthe guidance of the Yellow River ConservancyCommission and MWR, Inner Mongolia hasassigned water withdrawal quotas among sixriverside cities, drafted a plan for water transfers,and established an Office for Water TransferAffairs to manage transfer funds and oversee



The Murray Darling basin is home to probably the most advanced system of tradable water rights inthe world. In a process that began more than 20 years ago, water rights in the basin have been formalized, separated from land ownership, and specified in terms of both volume and supply security. Water users in all states now hold a legal entitlement to a water share specifying the sourceof water, its reliability and/or security, and conditions on how that water may be used. In addition,salinity entitlements—the rights of an area to export (i.e., flush away) salt—have also been defined,with each area obliged to stay within its entitlement or face stiff penalties.

Water trading can be either temporary or permanent. In temporary trading, a right to takewater—but not the right itself—is sold for a particular season once the water has been confirmed asavailable. Such transfers are widely used to reallocate water locally between individual users, gen-erally within irrigation schemes. In permanent trading, ownership of the water allocation itselfchanges and the seller relinquishes all rights to the entitlement. These trades generally reflect someform of structural adjustment within an enterprise or the introduction of water efficiency measures.

To date, the market for temporary transfers has been much larger than that for permanent trade.For example, of the 990 million m3 traded across the Murray-Darling basin in 2001–02, only 8 per-cent was traded permanently. This reflects the fact that temporary trades are more localized, easierto organize, and not subject to the same kinds of restrictions that apply to permanent transfers. Inboth cases, transfers are voluntary, with prices agreed between buyer and seller, and with price andsale information made publicly available, often online.

Water trading within states has been possible since the late 1980s. Procedures for interstate trad-ing have only recently been developed and piloted. These include the specification of “equivalentratios” defining, at a basin scale, what a unit of water in one place equates to in another; approvalprocesses in both buying and selling states’ water licensing authorities (both states must approve thetrade); and annual adjustments to state allocations made by the commission to reflect any transfersthat have taken place.

B O X 5 . 1 0 Water Markets in the Murray Darling Basin, Australia

Source: Murray Darling Commission website, www.mdbc.gov.au; Turral et al. 2005; WET 2006.

implementation. One such agreement is dis-cussed in Box 5.11.

The channel lining and water transfer modelis, in many respects, an attractive one: down-stream industries can weigh up the costs andbenefits of water-saving investment in irrigationdistricts and reach market decisions; the waterpermits of IDs can be adjusted and enforced bygovernment agencies to reflect transfers; newinvestment in supply augmentation can be de -ferred or canceled, and farmers see their irrigationcharges fall as they no longer pay for leakage.Nonetheless, the Hangjin experience also high-lights some potentially negative impacts, particu-larly in terms of agency financing and third-partyeffects.4 Moreover, rights to the traded waterremain ambiguous. In particular, it is unclearwhether the permits assigned to irrigation districtsare owned by the irrigation agency, or just held bysuch organizations on behalf of farmers in a formof “trusteeship.” Other programs in China havefocused more on establishing the basic under-

pinnings of rights-based management, with watertrading viewed as one of a number of benefi-cial outcomes. One initiative combining manydifferent elements has been implemented inthe water-scarce Heihe (Black River) basin inGansu Province. The city of Zhangye accountsfor 92 percent of the population and 83 percentof the total water withdrawal in the river basin,and has a critical role in the sustainable use of thebasin’s water resources. To optimally utilize thewater resources of the Black River and mitigateconflicts between water withdrawals and envi-ronmental flows, a range of measures has beenimplemented (see Box 5.12).

Since implementing the pilot project, Zhangyehas made good progress in water resources man-agement. Water withdrawals from the Black Riverhave been reduced by more than 300 million m3

each year; downstream aquatic eco systems andthe environment are gradually recovering; andLake Juyanhai has restored streamflow after manydry years.



In order to address water shortages experienced by downstream industrial users on the Yellow River,the Office for Water Transfers Affairs under the Water Resources Department of Erdos City has ini-tiated a novel water transfer project. Beginning in 2004, the office has overseen a program in whichirrigation returns saved through channel lining in Hangjin Irrigation District are transferred to down-stream industries, with the costs of lining met directly by industrial beneficiaries. The outcome is atransfer of 78 million m3 of water to downstream users.

Although the transfer program is a new one, its effects on different stakeholders are alreadybecoming apparent. In particular:

• Impact on industry. The willingness of industrial enterprises to invest in channel lining indicatesthat this is a least-cost supply option for them, at least in the short to medium term.

• Impact on farmers. Farmers have benefited from reduced irrigation fees as they no longer have topay for unlined delivery (and therefore leakage) to WUA purchase points. Farmers are also likelyto benefit from reduced soil salinity as waterlogging in some areas is a serious problem.

• Impact on the irrigation agency. Hangjin Irrigation Management Bureau has seen its financial posi-tion undermined by the channel lining program, with losses of around 1 million CNY/year antici-pated by project completion. This is because farmers are no longer paying for leakage.

• Impact on other uses/users. Some wetlands toward the tail of the irrigation district have dried up, andimpacts on groundwater levels within and outside the district are uncertain. Questions remain overwhether leakage reduction programs in water-stressed basins generate “real” savings (see Box 3.4).

B O X 5 . 1 1 Channel Lining and Water Transfer: Experience from Hangjin Irrigation District, InnerMongolia

Source: WET 2007.

There are more examples of rights reformand water trading in China not included here.A general observation is that few represent purelymarket-based transactions. In most instances,there has been major government involvementin identifying the parties involved and broker-ing the deal. This is not a criticism, simply arecognition that there are multiple options forre assigning water, and in many instances effi-ciencies can be gained from some form of centralcontrol over the process.

CHALLENGES AND LESSONS FOR CHINA

There are a number of aspects of the currentwater management system in China that pose aproblem to the introduction of a comprehensivewater rights system of the kind outlined above.These are summarized below.

• Rights to water are not clearly defined. The rightsafforded the holder of the entitlement are not

well specified. It is not always clear who holdsthe right and to what the right entitles them.Water resources allocation plans have only beencompleted in some basins, and seldom at allregional levels. Similarly, there are many waterabstractors—particularly farmers in surfacewater irrigation districts and rural groundwaterusers—that do not hold abstraction permits.

• Consistency and integration need improvement.There is little or no coordination betweenwater resources allocation plans at differentlevels. This leaves open the likelihood thatplans that apply to the same area may beinconsistent. Similarly, there is little or noconnection between water resources allocationplans and abstraction permits. Permits shouldbe granted based on the volume of water avail-able under an allocation plan; however, this isnot currently the case with permits, which aregenerally decided on a case-by-case basis.

• No total control over water use. Different reg-ulatory instruments (for example, differentallocation plans or abstraction permits) can



Zhangye City in the water-stressed Heihe (Black River) basin of Gansu Province was chosen by theMWR as the first pilot project to build a water-saving society and establish a system of water rightsadministration. A sequenced approach to improving water resources management has been imple-mented, focusing initially on data collection and analysis and the definition and allocation of waterrights. Following this, various demand management measures were implemented, including wateruse controls, quota management, water pricing, and the introduction of water markets.

• Water allocation and quota management. Water rights were defined and clarified with quanti-tative targets for water consumption determined in the Water Allocation Plan for the Black River.Local governments at district or county levels and their water bureaus allocate water among reser-voirs, irrigation, urban water supply, and other water uses.

• Water ticket and trading system for irrigation. A water ticket system was established for the irri-gation area of the Liyuan River, with WUAs purchasing group tickets from the water administra-tion on behalf of farmers based on their water use permits.

• Farmers’ water user associations (WUAs). WUAs were established at the village level to promotevoluntary participation in water management. Water user groups were then formed within theWUAs. Authorized by the government, all or part of the rights in maintaining, managing, andusing engineering facilities were granted to water users for self-management.

• Institutional arrangements. Various institutional systems and administrative rules were establishedto support water rights management, such as Measures on Water Resources Administration, Ruleson Water Rights Transaction Administration, Conventions on Water Affairs Consultation, andMeasures on Management of Pumping Wells.

B O X 5 . 1 2 Defining, Allocating, and Trading Rights in the Heihe Basin

take different approaches to the way waterrights are defined. In some cases, rights aredefined as an abstraction volume, in others as a consumption volume. These differentapproaches are not of themselves a problem.However, rights may be granted for abstrac-tion, with an assumption that certain waterwill be returned to the system; that is, there isan assumption about the volume actuallyconsumed. Where there is no requirement forthis water to be returned, there is a risk thatthe assumption will prove false, resulting inoverconsumption.

• Environmental sustainability. There is a gen-eral lack of consideration, and provision for,environmental water requirements. In someinstances water has been set aside for the envi-ronment, but these volumes are generally notallocated on a sound scientific basis. Thisposes a threat both to the long-term health ofthe water resources in question, and hence alsoto the ability of the source to supply watersuitable for human consumption.

• Limited security. There are few rules in placethat protect against changes to water rightsand no clear provisions dealing with whathappens where an entitlement is adverselyaffected. Also, there is limited certainty forwater users. There is broad discretion interms of decisions affecting what water willbe available under an entitlement in anygiven year—whether at the regional, abstrac-tor, or farmer level.

• Limited information and transparency of process.There is limited information publicly availableregarding how water is allocated from year to year, the details of permits, the monitoringof water abstractions, etc. This information isoften stored in paper records by different agen-cies, and is difficult for other agencies or thepublic to access.

• Limited public participation. Procedures forpublic participation during the initial alloca-tion of rights, trading, and management arenot clearly defined, and there is little scope for

the public to be involved in, and to develop anunderstanding of, water rights and the alloca-tion process.

• Implementation, monitoring, and enforcementare generally poor. In many cases, the overarch-ing policies may be strong, but the capacity andresources do not exist to implement them fully.This is particularly so for rural groundwater usein northern China.

Specific lessons on water rights and trading canbe drawn from market experience in other coun-tries and China’s emerging experience. Theselessons include the following:

Lesson 1

The entitlements of users under different levelsof water availability should be clearly defined,with assignments for environmental uses asappropriate. In particular, allocated water rightsshould not exceed water availability, determinedthrough sound water balance analyses and ongo-ing monitoring.

The initial specification of rights should ensurean overall balance between demand and supply.In China, the step-wise approach to rights speci-fication, allocation, and enforcement adopted inthe Heihe basin and the Hangjin Irrigation Dis-trict suggests a sensible way forward. The tradingdifficulties that emerged between the cities ofDongyang and Yiwu, on the other hand, indicatehow problems can occur when rights are notclearly defined at the outset.

Major differences between the Chinese andinternational contexts should be noted, how-ever. In China, most irrigation schemes werenot designed or engineered to deliver control-lable, monitored flows to individual farmers.This means that individual rights, of the kindtaken for granted in the U.S. or Australia, haveto be asserted indirectly though a water usergroup. In these circumstances, defining and allo-cating group entitlements is a practical alterna-tive, but raises questions about the democraticnature of group decision making in water trading



decisions. Finally, there is the issue of environ-mental flows to be considered in water rights.

Lesson 2

Infrastructure needs to be in place that is capa-ble of delivering changing allocations.

In China, most of the trades described in thischapter use existing infrastructure to reallocatewater. For example, the water liberated fromchannel lining in Hangjin Irrigation Districtflows downstream to industrial buyers, with thepermits of both buyer and seller adjusted accord-ingly. Local trade within IDs is also an option,though infrastructure has to be capable of re -distributing water—at least to WUA purchasepoints—in accordance with market signals. Oneadvantage of channel lining programs is thatthey enhance water control, making it easier toallocate water between areas and sluices andthus, potentially, between WUAs trading groupentitlements.

Lesson 3

The ET approach targeting reduction in con-sumptive water use can be a powerful instrumentfor water management in conditions of extremewater stress.

The goal of improved water resources man-agement and water rights allocation is the morerational use of scarce water resources. The ET-based water resource management being pilotedin the Hai basin and elsewhere in China is aninnovative approach. The ET approach helpspromote the sustainability of the water resourcesystem by focusing on the better management ofactual consumption of water (actual ET) ratherthan just the extraction and use of water. Thismay be particularly important in the agriculturalsector where different production techniques canresult in very different ET outcomes, even withthe same nominal water extraction quotas. Inurban areas, an ET strategy will be designed toreduce water consumption (and increase returnflows) rather than just focusing on reducing thegross use (extraction) of water.

However, from an overall perspective, ET-based water rights administration has not beenaccompanied by a replicable, developed, andsound administrative framework and institu-tional system, and still requires in-depth studiesand explorations.

Lesson 4

Monitoring and measurement procedures andstandards that are acceptable to both buyers andsellers should be in place.

Volumetric allocations require volumetricmeasurement, ideally direct measurement viawater meters and sluices. In addition, measure-ment standards and procedures need to beaccepted as legitimate by both buyers and sellers.Monitoring is more than a hardware issue. Thereare some sharp distinctions between internationaland Chinese contexts. Irrigation districts in Chinamay include many thousands of small landhold-ers, each using small volumes of (un-metered)water. Most systems combine bulk volumetricdelivery to intermediate purchase points witharea-based charging within each irrigation area.Transfers within irrigation systems (other thanthose arranged informally between neighbors, forexample) will require the definition and realloca-tion of group rights.

Monitoring clearly becomes more complexwhen a distinction is made between consumptiveand nonconsumptive uses of water withdrawn (asis explicit in the ET-based approach). Restrictingtrade to consumptive use has a fundamentaladvantage: third-party objections to transfers arepotentially reduced since the amount of returnflow can be specified.

Lesson 5

Effective regulation is needed, with procedures inplace to identify and address third-party effectsand resolve disputes, particularly for large-scaletransfers.

Trading is embedded in a legal and adminis-trative framework that carefully regulates trans-actions. Specifically, where water trading has



worked beyond the purely local level, there are inplace laws assigning rights, laws describing howrights may be traded, legal systems that enforcesuch rights and punish infringements, and (inmost cases) systems in place for protecting theinterests of third parties. A key challenge is toencourage as much trading as possible while stilladdressing externalities.

RECOMMENDATIONS

Drawing on both international and Chinese expe-rience, this chapter has examined the require-ments for and functioning of a modern waterrights system, and has analyzed opportunitiesand constraints for the further development ofwater trading in China. We offer the followingrecommendations.

• Use water resources allocation plans as the basisfor water rights. Water resources allocation plansshould be developed—first at the basin level,then at the regional level—as the basis for allo-cating water within a basin. Plans should clearlyidentify three components: (1) the water avail-able for abstraction, (2) the amounts of waterconsumed, and (3) the amounts that mustbe returned to the local water system. Waterrights should then be defined accordingly withplans setting a cap for total water abstractionpermits in the plan area. Where possible, apractical distinction should be made betweenconsumptive and nonconsumptive use so thatwater conservation efforts are effectively tar-geted, and water trading does not affect theinterests of other users.

• Recognize ecological limits of water resources.Water resource allocation plans (and associa tedwater rights) should recognize the requirementsof the in-stream environment for water. Watershould be set aside for this purpose, recognizingthe importance of different parts of the flowregime for different parts of the ecosystem.

• Water withdrawal permits need to be clearly spec-ified and implemented. Permits must be speci-

fied in volumetric terms and need to be linkedto the initial allocation of water established inthe water resource plan. The total amount ofwater withdrawal permits should be limited tothe maximum allowable amount based on sus-tainable water use with sufficient considerationof environmental uses and new water uses.

• Where feasible, an ET-based water resourcemanagement should be promoted. The ETapproach focuses on actual water consumptionand hence encourages more efficient use ofwater, increased return flows, and the adoptionof more water-saving technologies. The ETapproach can thus help improve the sustain-ability of the water resource system in bothagricultural and urban areas. Based on theexperience of the pilot projects in Hai basin,the governments should promote the ET-based water resource management, especiallyin water-stressed areas.

• Explore opportunities for trading but recognizeits limitations. The sale or lease of water rightscan be an effective approach to raising the pro-ductivity of and returns to water within andbetween sectors. International experience—though limited—indicates that active mar-kets of varying hues can generate significanteconomic benefits once certain precondi -tions are in place. However, establishing clear,enforceable rights—and then developing effec -t ive markets that work in the public interest—are often a complex and time-consumingprocess. A step-wise approach to water tradingneeds to be adopted.

• Build capacity in water rights administration andtrading and clarify responsibilities. Water rightsadministration needs to be strengthened, withthe conditions, procedures, rights, and obliga-tions for water withdrawal, consumption, andreturn flows clearly specified. Adequate moni-toring, reporting, and enforcing are part ofeffective water rights administration. Farmerclaims to water shares within a group entitle-ment can be strengthened through investmentin WUAs to raise participation and account-



ability. Allocating group rights to rural ground-water associations or user groups can also helpaddress the problem of excessive groundwaterwithdrawals. Water trading further requireslaws assigning rights, laws describing howrights may be traded, legal systems that en -force such rights and punish infringements,data on resource conditions and trends, and (inmost cases) procedures in place for protectingthe interests of third parties.

Endnotes1. To maintain confidence in the water rights system, any

reductions should be made in accordance with pre-determined principles, particularly with respect to anycompensation payable as a result of the reduction.

2. Even where rights are specified in absolute terms (e.g., Chile, Mexico), allocations may—for practicalpurposes—be translated into proportional shares(Hodgson 2006).

3. Neglecting third-party impacts represents an exception tothe law in the western U.S., where return flows are treatedas part of the system and subject to appropriation. Theexception is possible here because of the transfer of sup-plemental water from another basin. The federal govern-ment retains ownership of all return flows (Frederick1993; Marino and Kemper 1999).

4. This is also a subject of vigorous debate in the UnitedStates. For example, the saving “gains” from channellining in a major, gravity-fed irrigation scheme wereinitially defined in terms of leakage reduction.Detailed analysis of the situation to determine wateravailable for transfer, however, revealed that 80 to 90per cent of the leaked water was already consumed else-where, and thus potential “savings” were minimal(Perry 2007).



The pricing of water is a key determinant of the demand for water and theefficiency of water use. In recognition of this, central and local governmentsin China since the early 1990s have been increasingly using water tariffs tomanage resources and improve water services, cost recovery, and demandmanagement. Nevertheless, repeated studies have shown that water supplyand sewerage prices are generally still too low in relation to the scarcity valueof water, and are not yet adequate to balance supply and demand at a levelthat is sustainable for the long term. A key concern is the potential impact offurther tariff increases on the poor.

To address such concerns, this chapter focuses on pricing issues regardingthe supply of water—and the disposal of wastewater—for residential, indus-trial, and commercial use. It first presents an overview of water pricing pol-icy and actual practice in China. Next, it looks beyond financial objectives,emphasizing that in principle prices should reflect the full delivery, environ-mental, and depletion costs. The chapter then reviews issues of social impactand affordability, and discusses pricing and income support methods to pro-tect the poor. It refers to a number of implementation issues, as well as finan-cial issues and metering. It concludes with recommendations on how toaddress potential impacts on the poor through careful design of water tariffs,as well as combining their implementation with expansion and improvementof water services for the poor.

WATER PRICING IN CHINA: POLICY AND PRACTICE

China has made a commitment to reform water pricing. Since the early1990s, China has increasingly charged for water and gradually increased thelevel of water tariffs in both urban and rural areas. There are now regulationsand policies laying the basis for governments to charge for water use based onlocal circumstances. Revenue from water tariffs already covers at least theoperations and maintenance costs of most water supply utilities, even in many

Improving Efficiency and Equity in Water Pricing

6

�


rural communities. The general public is willingto support charges as long as the quality of theservice is good and the tariff level is acceptable.

The Administrative Regulation on UrbanWater Supply Pricing, introduced in 1998, pro-vides a legal basis for water supply pricing inChina. The regulation states that (a) the generalprinciples for setting water tariffs are “cost recov-ery, reasonable profit, water conservation andsocial equity;” (b) municipalities are responsiblefor approving water tariffs; (c) tariffs shouldcover operation and maintenance, depreciation,and interest costs; (d) tariffs should allow for an8 to 10 percent return on the net value of fixedassets, depending on the sources of funds; (e) tar-iffs should be appropriate to local characteristicsand social affordability; (f) municipalities shouldgradually adopt a two-part tariff consisting of afixed demand charge and a volumetric charge orincreasing block tariffs (IBT), where the first blockshould meet the basic living needs of residents;and (g) public hearings and notice should beconducted in the process of setting water tariffs.

In terms of charges for wastewater, the WaterPollution Prevention and Control Law of 1996provides a legal basis for charging wastewaterfees to all users connected to an urban seweragenetwork. It stipulates, among other things, thaturban sewage should be treated in a centralizedwastewater treatment plant, and that its costsshould be recovered through a wastewater treat-ment fee to ensure effective operation.

In addition to tariffs for water supply and sew-erage, water bills typically include a water resourcefee and a water development fee. The water devel-opment fee is based upon the cost of the raw watersupply infrastructure. The water resource fee, inprinciple, reflects the opportunity cost and scarcityof the actual raw water source, and is charged toall water users. Guided by the Ordinance of WaterPermits and Water Resource Fee Managementof 2006, water resource fees are determined by thelocal government(s). The fee goes to local andcentral governments as part of general revenue. Inpractice, the majority of the fee income is retained

by local governments. Zhejiang Province, forinstance, specifically states that local governmentskeep 80 percent of the fee and submit 20 percentto the provincial government. The fee is to beused for water resources development, saving,protection, and management. The actual useof the fee varies, depending on local needs. Forinstance, a portion of the fee in Beijing is trans-ferred to the South-North Water Transfer Proj-ect. Some counties send part of the fee revenue tolocal forestry bureaus for ecological compensationin river basins.

To meet the objective of cost recovery, watertariffs in China have been increasing since the early1990s. For example, during the period from 1991to 2004 water tariffs in Beijing increased from0.12 to 3.70 yuan/m3 (Table 6.1). In Chongqingduring the period from 1999 to 2006, they rosefrom 0.85 to 2.8 yuan/m3.

Tariffs are expected to continue to rise. AmongChina’s large cities and megacities, charges typi-cally range from 1 to over 3 yuan/m3 of water forresidential use (Figure 6.1). Compared to chargesthat were generally below 1 yuan in the 1990s,this is a significant increase. The wastewater treat-ment fee ranges from 0.25 to 1.00 yuan/m3, com-pared to the typical 0.08 to 0.10 yuan/m3 priorto 1996.

Despite this progress, water pricing in Chinais still inadequate to finance efficient utilitymanagement, and, more fundamentally, to sup-port sustainable long-term development of waterresources. Subsidies from general governmentrevenues are still the norm. Only a few citiescharge residential consumers more than a purelynominal amount for wastewater management.According to the data from NDRC, the averagewastewater charge in 36 large- and medium-sizedChinese cities is 0.67 yuan/m3, equivalent totwo-thirds of the treatment cost.1 By the end of2005, over 150 cities charged nothing for waste-water,2 and 278 of 661 cities had no wastewatertreatment facilities at all.3 This shortfall in waste-water treatment capacity is a major reason forChina’s continuing water pollution problem.

I M P R O V I N G E F F I C I E N C Y A N D E Q U I T Y I N W A T E R P R I C I N G




T A B L E 6 . 1 Water Tariffs in Beijing, 1981–2007 (yuan/m3)

1981.1 ∼ 1992.1 ∼ 1996.4 ∼ 1997.12 ∼ 1998.9 ∼ 1999.11 ∼ 2000.11 ∼ 2002.2 ∼ 2003.2 ∼ 2004.8 ∼1991.12 1996.3 1997.11 1998.8 1999.10 2000.10 2002.1 2003.1 2004.7 present

Water supply fee 0.12 0.30 0.50 0.70 1.00 1.30 1.60 1.70 1.70 1.70

Wastewatertreatment fee 0 0 0 0.10 0.10 0.30 0.40 0.50 0.60 0.90

Waterresources fee 0 0 0 0 0 0 0 0.30 0.60 1.10

Residentialwater tariff 0.12 0.30 0.50 0.80 1.10 1.60 2.00 2.50 2.90 3.70

Source: Beijing Water Company information at http://www.bjwatergroup.com/htm/law/18_2.htm.

Xining

Lanzhou

Xi'an

Taiyuan

BEIJING

Harbin

Tianjin

Zhengzhou

Nanjing

WuhanShanghai

Fuzhou

Guangzhou

Chongqing

1.57/0.27

1.45/0.3

1.95/0.52.40/0.65

2.45/0.25

2.90/0.6

3.70/0.9

2.30/0.5

2.30/1.01.93/0.9

1.90/0.8

2.05/0.85

2.80/0.7

2.02/0.7

0

0 100 200 300 miles

300 kilometers


WATER TARIFF/WASTEWATERCHARGE

1.57/0.27

Source: The numbers in figure 6.1 are 2006 data reported athttp://www.xxpi.com/gongq/ShowArticle.asp?ArticleID=4300. The water tariff of each city includes the sewerage charge.

F I G U R E 6 . 1 Municipal Water Tariffs and Wastewater Charges by City (yuan/m3)

Another aspect of water pricing that deservesscrutiny concerns the variation in municipalwater tariffs and sewage treatment fees. As illus-trated in Figure 6.1, developed coastal cities(especially those in North China and in the lowerreaches of river basins) usually charge water tar-iffs and wastewater treatment fees much higherthan less-developed upstream cities. For instance,in 2006 the three cities with the highest seweragefees were Nanjing (1.0 yuan/m3), Shanghai(0.9 yuan), and Beijing (0.9 yuan); the lowestwere Xi’an (0.36 yuan per cubic meter), Lanzhou(0.3 yuan), and Xining (0.27 yuan). The citieswith the highest prices are in downstream coastalareas, while those with the lowest prices are inupstream inland areas. Partly as a result, the down-stream cities have much higher wastewater treat-ment capacity and treat a larger share of theirwastewater than the upstream cities, leading togreater environmental damage along the rivers,and a lower effectiveness of water pollution invest-ment nationwide. While the variation may bejustified by different levels of development anddifferences in affordability among different cities,establishing a more reasonable mechanism forsetting the price right—taking into account bothaffordability and environmental objectives—is achallenge for China.

A particularly egregious example of poorlycoordinated water pricing is found in Xi’an Cityand its surrounding area in Shaanxi Province,where water shortages are severe and worsenedby water pollution. Drinking water and sewagetariffs in Xi’an City were 1.95 and 0.36 yuan/m3

respectively in 2005.4 In the same period, thedrinking water price in Jiaokou, which is down-stream from Xi’an, was reported to be as high as15 yuan/m3 because the Wei River was heavilypolluted and local residents had to transportdrinking water from the city. Yet for a nearbypapermaking mill just across the Wei River,which relied on groundwater, its cost was only0.08 yuan/m3 (ADB 2005). Such a pricing situ-ation is obviously not conducive to efficientwater resource use and management.

The Chinese government has been trying toaddress the low-tariff problem. In 2006, NDRCasked local governments to raise sewage treat-ment fees to 0.8 yuan/m3 by the end of that year.Although a price increase aiming to raise rev-enues to expand sewage treatment facilities isgenerally in the right direction, the request wasmade regardless of its affordability for local resi-dents in less-developed regions. Meanwhile, somesewage treatment plants actually earned profitsexceeding their financial requirements. This sug-gests that pricing policy needs to be carefullydesigned in order to help solve a problem ratherthan cause more problems.

The low-tariff problem in China has beendiscussed in detail in a number of studies. Forinstance, a 2007 analysis by the World Bank—Stepping Up: Improving the Performance of China’sUrban Water Utilities—addressed general man-agement aspects of the urban water sector (WorldBank 2007b). These studies have typically pro-posed price reform to encourage more efficientand less wasteful water use, but their main focushas been on the recovery of water productionand delivery costs to permit the efficient opera-tion of the concerned enterprises and the abilityto finance needed system expansion. Additionalattention is needed to also reflect environmentaland depletion costs in water pricing.

PRICING FOR ENVIRONMENT AND DEPLETION

To help address China’s water shortage, waterprices need to be set at a level that balances sup-ply and demand and is sustainable. For the longterm, this means that prices need to recover themarginal opportunity cost (MOC) of supply;that is, the full economic cost of providing anadditional unit of water. For the accounting ofeconomic costs to be complete, the MOC needsto include: (a) the marginal delivery cost(MDC), which is the cost incurred in producingand delivering an incremental unit of water tothe user, such as extraction, transmission, purifi-



cation, and distribution; (b) the marginal envi-ronmental cost (MEC), which reflects the costof environmental externalities associated withthe use of water, such as wastewater removal andtreatment costs; and (c) the mar ginal user cost(MUC), which reflects the value of water in alter-native uses or the depletion cost (which is the costof depriving water from alternative users). Thiscan be formally expressed as MOC = MDC +MEC + MUC (Pearce and Markandya 1989).The adoption of MOC as the pricing objective isessential to signal the scarcity of water to allusers, and to provide them with the right incen-tive to use water efficiently and to adopt appro-priate measures to save and protect the waterresource.

The MOC pricing approach has been illus-trated by a series of studies conducted under theauspices of the China Council for InternationalCooperation on Environment and Development(CCICED), in which the rapidly escalating costsof water and its disposal are typically shown toimply the need for prices well in excess of thoserequired to cover the purely financial costsincurred by the utilities concerned (Warford andLi 2002). However, this will not be equally truein all cases; adoption of the principle would tendto highlight differences between cities and regionsin terms of the real costs of water consumptionand disposal, thus providing important informa-tion for regional economic planning and decisionmaking.

One of the CCICED studies was conductedin the late 1990s (Spofford and Wu 1998) foundthere were large regional variations in the avail-ability and cost of water within China. It com-pared pricing policies for Beijing and Shanghai.In the case of Beijing, where water was in shortsupply and where massive investments in cross-country transmission of water were projectedfor the future, prices for nonagricultural use wereprobably from one-sixth to one-tenth what theyshould have been (with agricultural use beingalmost free of charge), so there were potentiallyhuge savings to be achieved from price reform.

In Shanghai, on the other hand, where supplycosts were not rising rapidly, prices roughlyapproximated the economic cost of supply.

These studies also emphasized that—quiteapart from avoiding wasteful use at the munici-pal level—MOC pricing has a major strategicrole. Allowing regional variations in the real costof water to be reflected in price policy wouldtend to encourage large water-using industries toshift to the cheapest sources of water and toinvest in water treatment, recycling, and reuse.Improved pricing would also encourage carefulconsideration of the regional water demands ofagriculture, and the scope for meeting future foodrequirements by means of less water-intensiveland use in water-scarce regions.

Our AAA case study on the water tariff reformand income impact in Beijing also proposes thatpricing policy should be developed around theconcept of MOC. It estimated that current resi-dential tariffs are about one-half of the long-runmarginal cost (equivalent to the MDC) of water(about 7 yuan/m3), not including the marginaluser and depletion costs MUC.

Few studies have addressed the marginal usercost or depletion cost of water, which should inprinciple be reflected in the water resources feecomponent of the overall price. In general, it isclear that in water-scarce regions, current waterresource charges do not come close to reflectingthe marginal user or depletion costs. This hasbeen documented in our analysis in the HaiRiver basin. It estimated the economic value ofwater, which is equivalent to the marginal usercost (Box 6.1).

With regard to wastewater, the Beijing studydescribed in Table 6.1 shows that wastewatercharges, which are based on the volume of waste-water discharged and in turn on the quantity ofwater consumed, are about 0.9 yuan/m3, whichjust covers treatment costs. The Beijing studyestimates that wastewater treatment will costaround 1.25 yuan/m3 by 2010, and proposes thatwastewater charges should be equal to or higherthan that level.



Furthermore, the implementation of MOCpricing requires that for industry and certaintypes of commercial activity, it is important todistinguish between wastewater dischargers basedon the quality of effluents. A variable tariff shouldbe used based on volume and type of pollutant.In line with the polluters-pay principle, effluentcharges should be based (to the extent possible)on the cost of environmental damage caused bythe specific pollutants being discharged into thewastewater stream.

Marginal Costs and Planning

Even if it is not feasible or desirable to immediatelyraise prices to the level implied by marginal oppor-tunity costs, the estimation of MOC should be anessential element of water resource managementand planning. The MOC provides a benchmarkby which implicit subsidies can be estimated, andshould be used to assist in regional planning andlocational decisions, thereby encouraging poten-tial consumers to reveal their genuine willingnessto pay, and discouraging water-intensive devel-opment in inherently high-cost water areas. Inview of the rapidly increasing costs and scarcityof water in China, the importance of pricing inassisting such strategic economic decisions canhardly be overstated. However, to be effective,price reform cannot be restricted to municipalwater supply and sanitation; the approach pro-

posed in this paper must also be applied to agri-cultural irrigation and industrial water users thatdirectly withdraw their own water supplies fromsurface and underground resources.

SOCIAL IMPACT AND AFFORDABILITY

Price reform in the water sector worldwide hasoften encountered strong social and politicalopposition, and China is no exception. Local gov-ernments are often reluctant to raise water tariffsto a sustainable level. This is mainly because of concern over the potentially negative socialimpact of water tariff increases, especially on low-income households. Better assessment of thesocial impact of water tariffs, and measures to pro-tect the poor, are critical issues to be addressed inwater tariff reform.

Social Impact

Although often stemming from concern for thewell-being of poorer households, low water tariffsresult in inadequate financial performance by awater utility and may have perverse consequencesfor income distribution. This is illustrated by evi-dence from Chongqing City.

In 1999, the residential water tariff in Chong -qing was around 0.85 yuan/m3. The municipalgovernment provided free capital investment to



An ongoing study of the Hai River basin provides some estimates of the economic value of water(EVW), which is a good estimate of the marginal user cost (MUC, or the cost of depletion). This regionhas the most severe water-related problem among all major water resource regions in China. How-ever, while water delivery costs (MDC), at 5.08 yuan/m3, are relatively high, they are minimal in com-parison with the potential costs of a water shortage in the region. The study estimated the EVW—orMUC—in terms of value added in alternative industrial or agricultural uses. It found that the averageEVW for economic sectors based on integrated water withdrawal in eight study areas was 41.8yuan/m3. It was highest in the services sector, at 208 yuan/m3, followed by construction at 180 yuan/m3,and mining and quarrying at 114 yuan/m3. The lowest was for various agricultural uses, ranging from3 to 16 yuan/m3. There is considerable variation in EVW between different areas. The highest averageEVW is in Beijing, while it is much lower in predominantly agricultural counties.

B O X 6 . 1 The Marginal User Cost of Water in the Hai River Basin

water utilities, which was equivalent to a subsidyof 1.34 yuan/m3. The municipal water companyneeded 500 million yuan each year for new con-struction, extension, and improvement of watersupply service. This amount was greater than thetotal annual budget for all municipal constructionactivities. The result was that neither the expan-sion nor the quality of water and sewerage servicescould keep up with the rapid growth of the city.At that time, inadequate funding meant thatonly 20 percent of municipal distributionpipelines met national technical specifications,and the water available for residential con-sumers barely met minimum drinking wa terstandards. Meanwhile, only 6 percent ofmunicipal wastewater was treated, and un treateddomestic and industrial wastewater contami-nated public water bodies and threatened humanhealth.

The social impact of low water pricing on thepoor was negative and obvious. First, higherincome consumers enjoyed better quality serviceand were the main beneficiaries of the prevailingpolicy of subsidizing water supply, since they con-sumed the most water. The 2006 willingness topay (WTP) survey shows that the poorest house-holds with monthly incomes below 200 yuanconsumed only 0.4 to 8 m3 of water per month(2.4 m3 on average), while those with monthlyincomes exceeding 1,500 yuan used from 1.5 to30 m3 (9.6 m3 on average). On this basis, given asubsidy of 1.34 yuan/m3 regardless of consump-tion level, the poorest households received only3.23 yuan per month on average from water sub-sidies, while the average higher income householdsenjoyed a subsidy of over 12 yuan per month.

Second, low water quality and inadequate ser-vice have a disproportionate impact on the poor.It is well documented that inadequate fundingprecludes extension of networks into underprivi-leged areas. In Chongqing, the analysis shows thatthe public spent more on bottled water and otherwater-related expenses than on metered water,due partially to their concerns over the poor qual-ity of tap water. Failure to expand and improve

service to low-income areas gives poor peopleno alternative but to consume water of inferiorquality, often obtained from private sources atextremely high cost. These findings prompteda major evaluation of the relationship betweenfinancing public services and poverty issues in thecity of Chongqing, referred to subsequently inthis paper.

Affordability

Even though poor families may not benefit muchfrom water subsidies, they will be hurt the mostif prices increase. Affordability for the poor is aconcern in any pricing reform effort. The issueof affordability of water supply by the poor is ana-lyzed and addressed in the studies of Chongqingand five small cities or counties in Shandong,Henan, and Chongqing. They provide a goodillustration of the situation confronting munici-pal authorities in China.

There were 168,000 unemployed people inChongqing’s urban districts in 2004, which wasabout 4–5 percent of the total labor force. Localgovernments provide the unemployed as well asthe retired with small pensions (ranging from155 to 210 yuan per month, depending on thedistrict in which they live), but these are suffi-cient only for basic living requirements. A sur-vey conducted in the summer of 2006 in oneurban district and five towns in ChongqingMunicipality shows that the low-income (lessthan 400 yuan per month per household) popu-lation comprised 5 to 28 percent of the totalsample, indicating that the percentage of thepoor is significant and cannot be ignored. Asestimated by the survey, the WTP for water bythe poor was generally low and barely exceededthe existing water tariff. Even then it amountedto about 3 percent of household incomes. It isclear that the poor would be reluctant to accept anew price increase without additional financialsupport. The general public in the city (90 percentof those interviewed) agreed that the governmentneeded to provide minimum living support to



this group to compensate for further increases inwater tariffs.

The Beijing study referred to above showshow this issue is affected by income and priceelasticities of demand, presenting estimatesaccording to income group. The combination oftwo features, namely (a) generally low-incomeelasticity and (b) higher-price elasticities forlower-income groups, confirms that the poorer,typically less well-educated consumers are moreprice sensitive.

Figure 6.2 further summarizes the situationfor the five small towns—Gaomi in Shandong,Bishan and Jiangjin in Chongqing, and Tongxuand Weishi in Henan. In light of the widelyaccepted view that the maximum proportion ofhousehold income to be spent on water and

sanitation should be between 3–5 percent, afford-ability is clearly an issue for low-income house-holds in each city/county, even before projectedincreases take place. Among the cities or coun-ties studied, Bishan and Jiangjin face the great-est challenge; taking into account projectedincreases in incomes, the proportion spent onwater and sanitation will reach 8–10 percent bythe year 2020. This is required just to satisfythe relatively narrow objective of financial self-sufficiency for the concerned water authorities;basing prices on MOC would clearly be muchmore problematic.

Another important aspect of affordability isthat poor communities, often villages or ruraltowns as a whole, may be unable to afford theinvestment and operating costs required for an



Low-income households

Per

cen

t

0

2

4

6

8

10

12

2005 2008 2010 2015 2020

0

1

2

3

4

5

Gaomi BishanJiangjin

Weishi

Average-income households

Per

cen

t

2005 2008 2010 2015 2020

Gaomi BishanJiangjinTongxuWeishi

F I G U R E 6 . 2 Share of Water and Wastewater Services Expenses for Average and Low-Income Households

adequate service level to be supplied. This oftenrequires special governmental support.

PROTECTING THE POOR

A major challenge in raising water tariffs toreflect MOC is how to reconcile the objectiveof economically efficient water use while ensur-ing that poor people obtain adequate service fortheir essential needs. Provided safeguards forthe poor are built in, price reforms aimed atimproving the quality (safety, regularity, acces-sibility, etc.) of water services may be a win-winsolution.

Globally, a variety of pricing measures havebeen employed. An OECD report (2003)grouped them into two categories: incomesupport measures and tariff-related measures.Income support measures include water billreductions or waivers, water service vouchersfrom the government, capped tariff rebates anddiscounts, and payment assistance. Tariff-relatedmeasures include increasing block rates, cap-ping metered tariffs, special tariffs for low-income consumers, subsidized connections tothe network, and so on. In China, three generalapproaches are used: increasing block tariffs,income support, and price waivers for the poor-est households.

Increasing Block Tariffs

Raising the price of water may have significantregressive impacts. A uniform pricing schememay attain efficiency conditions at the margin,but it also gives rise to affordability problems forpoorer sections of the population, with potentialthreats to their health and general well-being.

A common way to address this dilemma is tochange the prevailing flat-rate tariff to one thatcharges more for higher rates of consumption.Chinese national legislation specifically refersto the role of the two-part tariff in ensuring thatthe poor are able to obtain sufficient water fortheir basic requirements. Generally, increasing

block tariff (IBT) structures can be used toreflect the true cost of water to customers usinglarge volumes of water, while allowing subsi-dized prices for essential use. The first blockprovides an element of subsidy and hence pro-tection for low-income households, while ratesapplied to the last block of consumption shouldreflect the marginal opportunity cost of water.

IBT raises several issues. First are the impli-cations for revenue sufficiency. Significant priceelasticities mean that the vast majority of con-sumers end up in the first block and only paya subsidized tariff. The tariff will therefore failto achieve cost recovery and the quality of thewater supply will be hard to sustain or improve.This problem can be resolved by reducing thesize of the first block. Experience—from Beijingand other cities in China—suggests there is noneed to subsidize water in excess of that requiredfor basic household requirements. Over andabove this level, water should be treated as anyother consumer good and priced at MOC. Atwo-step tariff is thus sufficient. Determina-tion of the volume of water that is required forbasic needs is therefore crucial, and may varyaccording to local economic and climatic con-ditions. In general, however, the level recom-mended by the World Health Organization(WHO) of 40 liters per capita per day (equiva-lent to about 5 m3 for a household of 4 persons)should be considered.

Some Chinese cities have set the first blockat much more than the basic need for living inChina, and therefore reduced the effectivenessof water tariffs as an incentive for water saving.In Lijiang City, for instance, the first block isup to 25 m3 per household per month, which ischarged at 1.40 yuan/m3 (plus 0.40 yuan/m3

for wastewater treatment). The second block,from 25 to 35 m3, is priced at 2.10 yuan, andthe third block, above 35 m3, at the price of2.80 yuan/m3. Since for a typical household offour persons, the first block is far more thanthat required to meet basic needs, very littlewater is sold in the second and third blocks,



with the attendant inadequate cost recovery forthe water company.

The second issue concerns incentives for thewater supply enterprise itself, whose objective isfull cost recovery or an adequate return on capi-tal. When IBT is introduced, the poor, beingsubsidized, may become a lower priority for thewater utility. Thus, a utility that aims to recovercosts will have a greater incentive to improve ser-vice for the more affluent neighborhoods andhouseholds than for the poorer ones. In thelonger term, the tariff structure may thus per-versely induce a lower quality of service for thepoor. The potential for such unintended effects,and the regulations required to remove them,needs to be weighed against the potential welfareenhancing effects described above.

A third issue concerns subsidies for the rich.The IBT system subsidizes all water consumers,rich and poor, for the first block of water con-sumption. Furthermore, the subsidy is maxi-mized when households consume the full firstblock. Moreover, poor households are frequentlylarger than richer ones. Although family sizeappears to be relatively uniform in Beijing, it islikely that low-income households will lose outin a system based on a four-member family; thatis, where several of the poorer households shareone metered connection.

Other Options

Other measures, such as the provision of mini-mum income support and water service vouch-ers, are employed in China to allow the pooresthouseholds to obtain adequate water supplyservices. While designed to be temporary, andto phase out as incomes increase, the rapidlyescalating costs of water supply may mean theseincome support measures remain relevant for thenear future, and thus are worthy of serious con-sideration. Actually, it is by no means certain that,even with continued rapid economic growth,incomes will increase at a faster rate than the costof water.

These approaches involve a number of practi-cal difficulties. Administrative problems associatedwith the issuance of vouchers for low-incomehouseholds to exchange for water and sanitationservices could include the printing of fake vouch-ers, while trading of vouchers has also occurred.Another practical problem is that while a subsidyearmarked for water may help to overcome objec-tions to price reform in the short run, this maybe of no help for future price increases. In gen-eral, in a time of rapid change in China, with large“floating” and migrant worker populations, themost vulnerable members of society often do notqualify for support from the local authority inwhich they currently happen to reside.

In practice, a combination of methods maybe required. This is implicit in the recommen-dations made in a recent (2007) proposal to theChongqing Municipal Development ReformCommission, which refers to a “Five Orienta-tions” package. The package includes cross-subsidies among water consumers; rationalestablishment of the basic water requirement perfamily; use of vouchers that can only be used topay for water, based upon volume of use; and amanagement system that ensures consistencyand efficiency in collecting and allocating thesubsidies to those who need them most.

Rural and Low-Income Communities

The general recommendation that prices shouldcover both water supply and disposal costs maynot be feasible in the short term for poorer com-munities, or for those whose supply costs areparticularly high. This may apply in particular tolow-income rural communities. In such cases, asubsidy from general revenues transferred fromthe provincial- or county-level authorities maybe unavoidable for initial investment in infra-structure; thereafter, revenues should at leastcover operation and maintenance costs. Thiswill pave the way for increasing financial self-sufficiency on the part of water and sewerage



authorities as ability to pay increases. Establish-ing a link between local taxation and water use,combined with educational campaigns, is anecessary component of any strategy to avoidwasteful use.

For deprived areas within an otherwise fis-cally sound water supply jurisdiction, assistancemay be provided by cross-subsidies from highervolume water consumers to facilitate extensionof distribution networks and thereby reduce oreliminate connection fees.

Overcoming Public Resistance to Price Reform

While increasing prices to cover water productionand delivery costs is difficult enough, coveringenvironmental and depletion—or user—costs isclearly even more challenging, not only becausethe levels required will typically be much higher,but also because political and social acceptance ofsuch changes usually requires evidence of actualexpenditures. To some degree, this can be over-come by taxation collected by a public agency per

unit of consumption, rather than an increase inthe revenue accruing to the water company forexpenses not yet incurred. It is clear that suchproblems are compounded when existing servicesare inadequate. A chicken-and-egg situation maythus exist, since improvement in service may typ-ically require additional revenues, but prices can-not be increased when service is poor.

Overcoming public resistance to the increasein water price or tax is a problem encountered bywater authorities worldwide. The study there-fore proposes that greater efforts should be madeto involve stakeholders in water pricing policymaking, including public hearings to provide anopportunity for all stakeholders to state theirinterests. The public hearing process must betransparent, together with enough informationdisclosure to make the process effective. Aboveall, price reform should be gradual, and in paral-lel with improvements in both the quality andextension of access to water supply and sanita-tion services. Such an approach can be success-ful, as demonstrated in the case of Chongqing(Box 6.2).



An attempt to obtain public support for price increases that were required to provide funding forimprovement and expansion of facilities in Chongqing received a hostile reception at public hear-ings. Consequently, the Chongqing municipal government conducted a research effort to facilitatea public awareness campaign. This was aimed at educating the population about the costs of sup-plying water and managing wastewater generated in the city, and the impact on service quality ifthe municipal water supply system was unable to increase revenues. It showed that the primary loserswhen prices are too low were the poor, whose service standards remained inadequate; indeed, thericher consumers, who consumed the most water, were the biggest beneficiaries from the subsidiesinvolved.

In addition to the educational process, and in recognition of the problems the poor had in pay-ing higher water prices, the Chongqing municipality decided to implement a number of parallel sub-sidies for disadvantaged groups—such as the unemployed—sufficient to maintain basic livingstandards, which included paying the increased water bills. The study also recognized that a step-by-step approach must be used, and a schedule for gradual increases in prices over a number of yearswas introduced. Because the public was made aware of the findings of the study and in particularthe rationale for the price increase, subsequent public hearings attended by representatives of dis-advantaged groups were very constructive. The whole process was instrumental in making therequired price increases socially acceptable, and the reforms have apparently been effective in reduc-ing average water consumption in the city.

B O X 6 . 2 Making Price Increases Acceptable: the Case of Chongqing

OTHER IMPLEMENTATION ISSUES

In addition to the need to protect the poor inwater tariff reforms, there are other issues con-cerned in implementation. Some of these arediscussed below.

Performance Incentive Systems

Prevailing incentive systems clearly work againstserious price reform in the water sector. In com-mon with experience in the rest of the world,immense difficulties arise in increasing prices ofwater; political unrest has often been the result.In the past, the combination of relatively highturnover rates of public officials and the long-term nature of the water scarcity issue has beensufficient to preclude effective action. However,the increasing immediacy of the water shortageissue will presumably be matched by an increas-ing willingness of local and national officials totake the measures urgently required—if theperformance evaluation system is enhanced toreward local officials who take the risks inherentin pricing reform.

Gradualism

Water tariff reform is usually hampered by the pre -valence of market imperfections elsewhere in theeconomy, which would mean that price reformin the water sector alone may at once be ineffi-cient and inequitable (Warford and Li 2002).In particular, parallel pricing (as well as othermarket-related and management) reforms arestill required for major competing uses, primar-ily agricultural water use and direct industrialabstraction of water, both of which should alsobe priced based on MOC. In effect, manage-ment and pricing failures in these areas increasethe scarcity and therefore the opportunity costof water for municipal purposes. Until parallelreforms are undertaken for the irrigation andindustrial sectors, the true opportunity cost ofwater used for municipal purposes remains un -

clear, and the ability of municipal authorities tocontribute to overall efficiency in water use willremain severely constrained. Hence, price reformin the water sector should be gradual and in par-allel with overall trends in market liberalizationin China.

Metering

Volumetric pricing is necessary to achieve theeconomic and other objectives of water supplymanagement, but this requires meters to measurethe amount of water consumed. While installa-tion of meters in new buildings is increasingly thepolicy in Chinese cities, much effort is clearlyrequired if universal metering is to be achieved.It will usually be the case that investment inmetering, and the associated meter reading andbilling costs, are justified for industrial and com-mercial users. Nevertheless, these costs may notbe warranted for some small consumers, depend-ing in large part upon their levels of consumptionand the cost of water. Therefore, metering shouldbe addressed on a case-by-case basis.

Excessive Tariff Revenue

If an MOC approach is used, and where marginalcosts are rising significantly, revenues will be gen-erated in excess of financial requirements. In mostcities, the bulk of consumption is by a very smallproportion of industrial, commercial, and high-income residential consumers. MOC pricing forthe top block of a two-part tariff will thereforetypically provide ample scope for subsidizing low-volume use, extension of distribution systems tolow-income areas, and adequate quality of supply.The question may then arise as to the disposal ofany excessive profits that the utility might makewhen marginal costs are rising. Precise mecha-nisms for dealing with this will depend upon theform of ownership of the utility concerned. Butthe general principle should be that profits inexcess of the level mandated in national legislationshould be recovered by the government and used



to augment general revenues, or to substitute forother forms of taxation.

Use of the Water Resource Fee

The water resources fee (covering environmentaland depletion costs) should ideally be estimatedby appropriate local government organizationsbased upon water scarcity in a river basin. Sucha device would create more incentive for utilitiesand local governments to protect scarce resourcesrather than raise funds, while at the same timefacilitating an IRBM approach to water man-agement. However, since the revenues from thewater resource fee are largely retained by localgovernments (although usually earmarked fortheir own spending on water-related activities),they provide an incentive for overexploitation ofwater resources at the local level (i.e., the achieve-ment of local benefits), rather than for the pursuitof basin-wide objectives, which are chronicallyunderfunded. In addition, due to the existenceof the revenue from the water resource fee ear-marked for local water bureaus, the fundingsource of local water bureaus is limited to suchrevenue and excluded from government budgetsin many cases. It would be desirable to convertthe water resources fee into a tax.5 The tax rev-enues would be transferred to the central gov-ernment and be appropriated to support waterresource development and protection on thelocal, basin-wide, and national basis. The fundsof local water resource management programsshould be de-linked to the revenue of local waterresource fees and directly provided by govern-ments through their annual budgets.

RECOMMENDATIONS

Despite recent efforts by the government, waterpricing reform in China is facing challengesahead. Water tariffs, including wastewater treat-ment fees and water resource fees, are generallytoo low and have to continue increasing in theyears to come. To effectively address its water

problems, China needs to set the price to coverfull delivery and environmental costs and, moreambitiously, also depletion costs. Although con-cerns over the pressure of tariff increases oninflation and the income impact on the poor arelegitimate and should be taken into account inwater pricing reforms, they should not be usedto hold back pricing reforms. Generally speaking,price controls work against market mechanismsand tend to be an ineffective instrument for pre-venting inflation. In addition, there are adequatemeasures to protect the poor that can be jointlyapplied to pricing reforms. Our recommenda-tions are as follows:

• Given the magnitude of the water scarcity prob-lem, China should aggressively use pricing pol-icy to internalize the externalities of water use.In accordance with its commitments to build-ing a public service-oriented government and to avoid sharp increases in water tariffs, pricereform should follow the MOC approach. Thegovernment can cover the capital investmentcost of water facilities (including drainage net-works), whereas the users should cover opera-tion and maintenance costs and the increasingexternal costs of water and its disposal, specifi-cally the costs of environmental damage in pro-duction and consumption, and the opportunitycosts of depletion.

• China should make a greater effort to enhancewater metering. Accurate water metering is aprecondition for the price mechanism to playits role in stimulating water-related activities.The difficulty in water metering, especiallyfor groundwater use by households, has beenone of the major barriers to the effective adop-tion of price instruments. China should enhanceexpanded installation of water meters andensure their actual operation with a soundsupervision system.

• Governments should develop the capacity toestimate water depletion costs in a river basinor on a regional level. Estimated depletion costsshould be charged to the concerned utility by



the local authority. A system should be devisedin which MOC estimates can be integratedinto regional and national water managementand economic planning systems.

• The public should be fully informed of theproblems of low service quality, indirect costs,and inefficiency caused by underpricing orsubsidization of water and the importance ofwater tariff increases. To make a water tariffincrease acceptable, its social impact, espe-cially the income impact on the poor, has tobe addressed. A number of income or pricesupport measures can be used to protect thepoor and ensure a win-win result in water tar-iff reforms.

• Already adopted in Chinese regulations, theincreasing block tariff approach, especially atwo-tier tariff structure, is recommended forresidential consumers. The first block shouldfollow the WHO-recommended 40 liters percapita per day (i.e., about 5 m3 per month for ahousehold of four persons), with the secondblock gradually increasing to full MOC. Otherprice or income support methods for the poorare encouraged to be adopted based on localpolitical and economic circumstances. Watertariffs for commerce and industry should coverfull MOC.

• For several reasons—economic efficiency,social equity, and acceptability—a gradualapproach to price reform is recommended.Public hearings, consumer education, andtransparency are necessary to overcome resis-tance to price reform, especially when existingservice quality is poor. Parallel pricing reformsshould be carried out for other water uses, inparticular for agricultural use and large-scaleindustrial abstraction. In general, water pric-ing reform should parallel the overall marketreform trends in China.

• The water resource fee, which is currentlyretained by local governments, provides littleincentive for the local governments’ support ofbasin-wide or national level sustainable water

resource development. In the long run, the feeshould be converted into a tax, the proceeds ofwhich will be transferred to and appropriatedby the central government. Such a conversionwould provide a financial basis for the centralgovernment to facilitate more efficient waterresource planning based on national prioritiesfor water resource development and manage-ment. The funds of local water resource man-agement programs should be de-linked to therevenue of water resource fees and directlyprovided by central and local governmentsthrough their annual budgets.

Finally, as evidenced by a series of OECD reports,international experience offers limited guidance inthis area. With a few notable exceptions, waterpricing policies throughout the world fail to addressthe subject of water scarcity head-on, in large partdue to the political sensitivity of the subject. Giventhe urgency of the problem facing the country,China should look beyond international experi-ence and exercise leadership in this area before thewater crisis becomes unmanageable.

Endnotes1. “China to Charge on Wastewater and Solid Wastes

across the Country.” See Xinhuanet.com at http://news.xinhuanet.com/politics/2007-04/02/content_5926101.htm.

2. Ibid.3. Qiu Baoxing, Vice Minister of Construction, Speech at

the Press Conference organized by the State Council,August 22, 2006. See http://gov.people.com.cn/GB/46738/4734083.html.

4. The water tariff and wastewater charge in Xi’an Citywere the numbers prior to the pricing reform on Octo-ber 1, 2005. They have since gradually increased to 2.90yuan/m3 and 0.65 yuan/m3 (as of April 2007), respec-tively, for residential use. See “Water Tariff Raise inXi’an” at http://www.xawb.com/gb/news/2007-03/02/content_1126532.htm.

5. In Chinese terminology, a fee is usually collected andretained by local governments and is classified as extra-budgetary revenue for some specific use. A tax, however,is collected by the central government and its revenuesare allocated through the government budget.



Addressing water scarcity involves protecting water sources. The Chinesegovernment has attached importance to protecting ecosystems in the upperreaches of river basins. It is implementing or experimenting with a largenumber of ecological conservation programs at the national level. Bothcentral and local governments are increasingly interested in the use of eco-nomic instruments, mainly government transfers from public funds underthe name of ecological compensation mechanisms (ECMs), to protect eco -systems. For example, the “Grain for Green” program, which distributessome $8 billion per year, was launched right after the major Yangtze Riverflood of 1998.

Although these programs have had some positive impacts on ecosystemrestoration and generated much interest in expanding the use of ECMs, thereare still some issues. In particular, their heavy reliance on public financialtransfers (mainly from the central government), and the lack of a direct causallink between ecosystem service providers and ecosystem service beneficiaries,raises some doubts about the long-term sustainability of ECMs. An urgentquestion is how to sustain these programs financially and improve theirefficiency.

In addition to the ECM approach, there are other possible transfer mech-anisms, including payments for ecosystem services (PES).1 PES is both moremarket-oriented and self-financing than the ECMs currently used in China.PES directly links ecosystem service providers and beneficiaries.

This chapter focuses on exploring and promoting PES in China. It beginswith an overview of the policy and practice of ECMs in China, followed bya discussion of the concept and methodology of the PES approach. The suc-ceeding sections consider the international experience with PES and examinethe potential of applying the PES approach in China, using as a case studythe example of a small nature reserve in the upper reaches of the YangtzeRiver. The chapter concludes with recommendations.

Protecting Ecosystems in RiverBasins through Market-OrientedEco-Compensation Instruments

7

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ECOLOGICAL COMPENSATIONMECHANISMS IN CHINA

As a large and densely populated country, Chinafaces major challenges to properly conserve andmanage its river basins. As identified in earlierchapters, China’s rapid urbanization and eco-nomic growth have placed severe demands onavailable water supplies—both surface water andgroundwater. Agriculture, industry, and munic-ipal users all compete for increasingly scarce, andoften polluted, water supplies. As the availabilityof water is becoming a major constraint to eco-nomic growth, China is looking for ways to betterprotect and manage existing water supplies andthe watersheds that produce them.

Ecosystems in upper reaches, especially forestsand wetlands, are an important source of cleanwater that flows down rivers and provides a sourceof water for households, communities, and otherusers, including natural ecosystems, in the lowerreaches. In China the upper reaches of major riversare mostly in the western parts of the country.Due to a semi-arid climate, extreme weather, andgenerally low soil productivity, the upper reachregions are ecologically fragile and vulnerable todegradation. These same regions, however, havea long history of settlement. Most of the com-munities are poor, with an economy dependenton agriculture or animal husbandry. Unsustain-able land use practices—including steep slopecultivation, overgrazing, and poor conservationtechniques—and the thirst for economic devel-opment have put significant pressure on ecologi-cal conservation.

Nationwide, it is estimated that 40 percent ofthe country’s land area is affected by some form ofdegradation (wind and water erosion, overgrazing,deforestation, and/or salinization), mostly in theupper reaches of river basins. Degradation is esti-mated to have accelerated from 1,500 km2/yearin 1970 to 3,500 km2/year by the late 1990s.The causes include abnormally heavy rainfall,deforestation, and soil erosion in upper reaches.Another significant factor is human encroachmenton flood plains and the conversion of flood-prone

lands; a major flood took place in the YangtzeRiver in 1998. The floods caused major loss oflife and extensive property damage; economiclosses were estimated at over RMB 200 billion.In the aftermath of this disaster, the Chinese gov-ernment was determined to take action to protectthe ecosystems in upper reaches of major riverbasins and prevent similar disasters in the future.

Current Practices

The Chinese government, which is the main stew-ard of natural resources in the country, is explor-ing various tools for ecological conservation andnatural resource management. The concept ofintegrated river basin management (IRBM) hasattracted attention in China and elsewhere in theworld. IRBM has proved administratively chal-lenging to implement. While it recognizes themultiple links within watersheds, and the needto coordinate actions for improved management,water planners also realize that targeted inter -ventions are often necessary.

Ecological compensation mechanisms (ECMs)were first introduced in the 1990s, and, alongwith other tools, have become very popular. ECMsin China are a modern variant of traditional gov-ernment payments to providers of ecologicalservices. The government transfers money frommany different sources (e.g., resource taxes, excisetaxes, industrial taxes, and pollution fines) andcompensates land owners (or land users) for spe-cific actions that produce environmental benefits.Using government transfers for environmentalprotection is a well-established tradition aroundthe world, whether payments are for soil con-servation measures, improvements in watershedmanagement, or coastal zone protection measures.Some authors call this approach “supply-side,”since the government decides what environmentalservices to support and uses general tax revenuesto do so.

Recent national strategies and policies adoptedin China reflect the growing attention to ECMsas instruments for ecological conservation. So

P R O T E C T I N G E C O S Y S T E M S I N R I V E R B A S I N S


far, no single specific law on ECMs has beenpromulgated, but there are several naturalresources and environmental protection actswith specific clauses on PES, including theGrassland Law, Environmental Protection Law,and Sand Control Law, among others. As earlyas 1991, market mechanisms for watershedmanagement were introduced in laws such asthe Water and Soil Conservation Act.2

Various applications of the eco-compensationapproach, many of which are experimental, areunder way in China at the national and locallevels. These include compensation for migrationof residents living near water sources or reservoirs;subsidies to sewage treatment plants; compensa-tion to foster the forestry sector in upstream areas;and payments to farmers to compensate for lostproduction from reducing fertilizers and pesti-cides inputs. At the central government level, theChinese government has developed and imple-mented a number of the largest public paymentschemes for ecosystem conservation in the world,including the Sloping Land Conversion Program(SLCP), the Natural Forest Protection Project(NFPP), and the Forest Ecosystem CompensationFund (FECF).

The SLCP (also called the “Grain for Green”program) was initiated in 1999. It was designed torestore natural ecosystems and mitigate the adverseimpacts of agricultural practices carried out inpreviously forested areas or marginal land, whichresulted in flooding, sedimentation of reservoirs,and dust storms. Farmers who enroll in the schemereceive payments for grain seeds, seedlings, andmanagement expenses. The SLPC is one of thelargest public transfer schemes in the world. Itreaches some 30 million farm households, includesover 7 million hectares (ha) of cropland, and dis-tributes some $8 billion per year (Uchida, Rozelle,and Xu 2007).

In the forestry sector, the NFPP now covers17 Chinese provinces. It calls for a moratoriumon forest felling along the Yangtze River and themid- and upper reaches of the Yellow River, as wellas for a decrease in timber production in Eastern

Mongolia. Local governments are expected toprotect the remaining 94.2 million ha of naturalforest. In order to increase the pace of forestrestoration, 8.66 million ha of forest and 6 mil-lion ha of grassland will be established along theYangtze and Yellow rivers, and forest coverage inthese areas is expected to reach 3.72 percent. Thepayment made for protection and reforestationaverages RMB 71 per ha per year ($9/ha), 90 per-cent of which is paid by the central government.

The FECF program targets the management ofprivately owned standing forests, and compen-sates land owners for the ecosystem services pro-vided by their land and for the land and resourceuse restrictions involved with participation in theprogram. The scheme currently covers 26 mil-lion ha in 11 provinces, and costs the governmentabout RMB 2 billion ($253 million) annually, ofwhich about 70 percent goes to farmers for anaverage payment of RMB 71 ($9/ha). Local gov-ernments are encouraged to provide additionalfunds. In December 2004, FECF was extendedto cover the entire country. It covers key state-owned non-commercial forests, as well as wood-lands in areas at risk of desertification and soilerosion.

There are many smaller-scale examples ofECMs implemented by local governments orentities, such as the water rights trading schemebetween Yiwu and Dongyang cities in ZhejiangProvince; the eco-compensation payments beingdeveloped between Beijing, Tianjin, and localgovernments in the upper watershed of the Miyunreservoir; and the water use payment schemebetween the water company in Lijiang and Baishatown and the nearby sources of their water.

The Problem and a New Direction

Although China has made major investmentsin ECM programs, and has some of the largestsuch programs in the world, the effectiveness andefficiency of many ECM practices in China arenow in question, as shown in a number of recentanalyses of national ECM programs (see Xu et al.



2006; Scherr et al. 2006; and Uchida, Rozelle,and Xu 2007). Because of problems such as lowor incomplete payments, lack of transparency inthe operations of the managing authorities, andhigh transaction costs, there is growing concernover the financial sustainability of these programsover the longer run.

The causes of the problems are based notonly on the weak legal and institutional basis ofclear ownership and property rights over naturalresources in China, but also the lack of effectivemarket mechanisms to send the right signals.ECM applications in China have been mostlydriven by government intervention, with littleattention paid to the forces of supply and demandfor environmental services, or to inter-sectoralcoordination and collaboration.

It is becoming clear that the country shouldtry to move away from schemes where the gov-ernment is the sole buyer of the service to onewhere it will play a supporting role in creatingand maintaining an enabling environment andmarket for transactions by private actors. A morethorough involvement of local actors—especiallythe ecosystem service providers and beneficiaries—in the design, implementation, and monitoringphases is therefore needed. The examples of lo -cal interests and initiatives in eco-compensationschemes suggest that there is significant interestand potential for PES systems in China.

CONCEPT AND METHODOLOGY OF PAYMENT FOR ECOSYSTEMSERVICES

In the past those who benefited from environ-mental services (the beneficiaries) often had noconnection with those who provided the servicesand made no direct payments for their provision(other than through general taxation, which gov-ernments then redistributed to many uses). Atthe same time, those who provided the services(the service providers) received no direct financialpayments for providing this service. Althoughboth the ECM and PES concepts share similar

objectives (improved provision of environmentalservices), the PES concept recognizes the directlink between service provider and service user andis designed to mimic a market transaction wherepreviously a market did not exist.

Determining the appropriate payment for anenvironmental service obviously depends on manyfactors, including how much the service beneficia-ries value the service (and their ability to pay) aswell as the cost to service providers of maintain-ing the service. The actual level of PES paymentshas to be determined in each case, and must bal-ance these two needs.

Types of Ecological Services and Beneficiaries Involved in PES Schemes

In practice many of the early PES systems havedeveloped around ecosystem services where thecause and effect link between the provider ofthe service and the beneficiary is close: for exam-ple, watershed protection and consumers of thewater produced by the watershed, or recreationalusers of coral reefs and the protection and/orconservation of the coral reefs. Figure 7.1 lists awide variety of ecosystem services that are poten-tially amenable to PES schemes.

When the beneficiaries are direct (or evenindirect) users of the resource, it is easier to iden-tify and impose fees to support a PES system. If thebeneficiaries are using broader ecosystem services,it is more difficult to identify them and imposethe PES fees. In the latter case, one possibility isa general “environmental tax” on all citizens in thecountry (or a province or region) to collect fundsto help provide broad ecosystem services. Suchbroad taxes are never popular and the taxpayersrightly feel that their money is not necessarilyproducing any real benefits for them.

Economics and Mechanics of a PES System

The economic logic behind establishing a PESsystem is seen in Figure 7.2. In this example the



focus is on how a landowner manages a forestedarea in a watershed. The owner/manager can con-vert the forest to pasture and earn the expectedreturn, as shown in the bar on the left side of Fig-ure 7.2, or the owner can leave the forested areaunder conservation and earn the expected return,as shown in the middle bar. Since conversion topasture earns more income for the landowner,the landowner will favor this option. Conver-sion, however, reduces the environmental servicesof the land in terms of providing water to down-stream users. This is shown as the “cost to down-stream users” area below the axis in the left handbar in figure 7.2. Herein lies the quandary: froma social perspective the net benefit to society fromconversion of forest to pasture is quite small oreven negative, but the forest manager does notsee it the same way. He or she compares the twoareas above the axis in the first two bars and makesthe reasonable decision to convert from forestto pasture, since the net benefit to the forestmanager is larger.

With a PES system, however, a payment ismade to the forest manager that produces the

result shown in the right hand bar in Figure 7.2—the forest manager has a larger net benefit (rev-enues from conservation plus the PES payment),and the downstream beneficiaries are also aheadsince the cost of the PES payment is less than theirloss would be if the forest land was converted topasture. Both upstream service providers anddownstream service users are better off thanwithout the PES system.

The actual mechanics of a PES system are seenin Figure 7.3 (Pagiola and Platais 2002). The PESsystem has a governance structure (institutions)that allow payments to be collected from bene-ficiaries of the ecosystem service (on the left handside of Figure 7.3). The payments then go intosome sort of financing mechanism (often a specialfund) and are distributed via a payment mecha-nism to the various service providers (or land usersin the example in Figure 7.3). Almost all PES sys-tems follow a similar pattern. The main differenceslie in the details of how service beneficiaries makepayments (the taxes) and the form of the financingand payment mechanisms. Pagiola and Plataisexplore these issues at length in their 2007 report.



Watershed Biodiversity Soil Landscape/cultural

Slow down water runoff

Reduce erosion/ sedimentation

Filtercontaminants

Reduce/increase total water flow

Contribute to aquatic productivity

Preserve genetic diversity

Provide habitat for species

Maintain ecosystem functioning

Increase resilience

Aesthetic/ethic values

Help mitigate climate change through GHG sequestration

Maintain soil fertility

Restore soil fertility

Avoid soil erosion

Recreationalactivities

Non-usevalues

Spiritual/religiousbenefits

Provision services

Regulating services

Supporting services

Cultural/aesthetic services

Climate

F I G U R E 7 . 1 Main Ecological and Environmental Services by Type of Service

Source: FEEM Servizi 2006.



Conversion to pasture

Conservation Conservation with service payment

$/ha

Benefits to forestmanagers

Costs to downstreampopulations

Payment for service

FinancingMechanism

PaymentMechanism

BeneficiaryBeneficiaryBeneficiaryBeneficiaryBeneficiaryBeneficiary

Land userLand userLand userLand userLand userLand user

Governance structure

Environmental services

F I G U R E 7 . 2 The Simple Economics of Payments for Environmental Services

F I G U R E 7 . 3 The Flow of Compensation from Beneficiaries to Land Users in a PES System

Source: Pagiola and Platais 2002.

Source: Pagiola and Platais 2002.

Factors Determining the Ease or Difficulty in Establishing a PES System

Whereas ECM programs are fairly straight -forward—government funds are transferred toproviders of environmental services—the definingcharacteristic of a PES system is the establishmentof a financial link between those who benefit fromthe use of an environmental service and those whoprovide it. Since a PES system is basically creating

a new market where one did not exist before, anumber of factors will influence the ease withwhich a PES mechanism can be implemented.3

The main factors to consider are the following:

The “distance” between cause and effect

The link between ecosystem service providers andservice users or beneficiaries varies from very directand immediate (for example, local watersheds anddrinking or irrigation water supply) to very distant

(for example, carbon sequestration and impacts onglobal warming). It is normally easier to set upa PES system when the “distance” is small, andharder to do so when the “distance” is large.

The numbers of service providers and service beneficiaries

Since payments need to be made to the providersof the ecological service, service providers shouldbe relatively few in number and an institutionalmechanism must exist (or be created) to reachthem and make the payments. The number ofservice beneficiaries also matters, but may not beas much of a problem. In many watershed-basedPES schemes, the beneficiaries (individual users)are already paying for the water or electricity pro-vided, and therefore the additional PES paymentcan be added to existing billing and collectionsystems. The water utility in effect is the usergroup and one utility may represent hundreds,thousands, or even millions of people.

Collecting beneficiary payments and makingtransfers payments to service providers

It costs money to collect money and it costs moneyto distribute money. Therefore, to implement aPES system it is important to take into accountthe management costs involved. Sustainabilityof a PES system requires that the costs of admin-istering the system be kept low. A number ofsuccessful PES systems have overall “costs” of20 percent or less—meaning that 80 percent ormore of the collected money is actually used tomake payments to the service providers.

The legal and institutional framework

Without doubt the biggest potential handicap toestablishing a PES system is the creation and/orfunctioning of an appropriate legal and institu-tional framework. This is very important, sincefinancing is often being newly collected andpayments are being made to those who werenot previously receiving payments. It should beemphasized that the PES approach is not an

example of “business as usual” and that PES sys-tems are usually implemented, at least initially,at the local level. Whether new laws or institutionsare required depends on the situation in eachcountry, and tends to be very location-specific.4

THE GROWING INTERNATIONALEXPERIENCE WITH PES SYSTEMS

The earliest examples of PES systems wereoften associated with watershed managementand potable water supply. Service users (watercustomers) demand and are willing to pay forpotable water, and a mechanism usually exists (thewater bill) that can be used to collect the PESpayments. Still, the institutional mechanism formaking the payments to environmental serviceproviders usually has to be developed.

Box 7.1 lists a number of international exam-ples of PES schemes. Two of the best-knownexamples are the cases of New York City in theUnited States and Heredia in Costa Rica; theseare discussed here in more detail. Althoughthese two cities are polar opposites with respectto size, the PES approach used in each is actu-ally quite similar.

New York City

New York, one of the largest and richest cities inthe world, obtains its water supply from water-sheds in the Catskill Mountains north of thecity. Water quality was naturally good and littleor no treatment or filtration was required to makethe water potable. New York City consumedbetween 4 to 5 billion liters of water per day.However, by the end of the 1980s changing agri-cultural practices and other developments in theCatskills—such as nonpoint source pollution,sewage contamination, and soil erosion—threat-ened water quality (Pagiola and Platais 2007).

New York water planners considered twooptions: constructing a water treatment system ata capital cost of $4 to $6 billion with an additionalannual operating cost of about $250 million (fora total present value cost of some $8 to 10 billion),



• Brazil: A water utility in Sao Paulo pays 1 percent of total revenues for the restoration and conservation of the Corumbatai watershed. The funds collected are used to establish tree nurs-eries and to support reforestation along riverbanks.

• Costa Rica: A hydropower company pays $10/ha/year to a local conservation NGO for hydrologicalservice in the Penas Blancas watershed. In the town of Heredia, the drinking water company ear-marks a portion of water sales revenue for reforestation and forest conservation.

• Ecuador: Municipal water companies in Quito, Cuenca, and Pimampiro impose levies on watersales, which are invested in the conservation of upstream areas and payments to forest owners.

• Lao PDR: The Phou Khao Houay Protected Area currently receives 1 percent of the gross revenuesfrom a downstream hydropower dam, and the proposed Nam Theun 2 hydropower project is expected to provide over $1 million/year for the management of the Nakai-Nam Theun Protected Area.

• Japan: The Kanagawa Prefectural Assembly adopted an ordinance in October 2005 that willimpose an additional residence tax to be used exclusively for protecting water sources, with thefunds going to projects aimed at conserving and restoring forests and rivers.

• Colombia: In the Cauca valley, water user associations have assessed themselves additional chargesand used the revenue to finance conservation activities in their watershed areas. Watershedmanagement in the country is partly funded through a 6 percent tax on the revenue of largehydroelectric plants.

• United States: New York City’s Watershed Agriculture Program, launched in 1994, involves paying dairy and livestock farmers to tackle nonpoint source pollution and to retire environmen-tally sensitive lands from production.

or implementing a plan to work with the upstreamland owners/managers in the Catskill watershedto eliminate potential problems and maintain ahigh quality water source. The second option waschosen. It is a classic PES approach that includeda number of different measures and actions(including payments for both on-farm capitalcosts and pollution-reducing agricultural mea-sures). The plan was implemented for a cost toNew York City of about $1.5 billion, or less than20 percent of the cost of constructing and oper-ating a water treatment system. Note that the“market” in this example exists between the waterutility in New York City and the watershed man-agers, and not between the millions of individ-ual water consumers in New York City and thewatershed managers.

Heredia, Costa Rica

Heredia is a small university town in Costa Rica,not far from the capital of San Jose. Faced with

similar issues as New York City—changes in thewatershed were having an impact on the potablewater supply—Heredia decided to set up a PESsystem that would tax the water users (about50,000 connections) in order to pay farmers in thewatershed to undertake improved conservationmeasures. Heredia consumes about 3 million litersper day, one-tenth of 1 percent of New YorkCity’s consumption (Castro 2000; Barrantes andGamez 2007).

In the late 1990s researchers (see Castro 2000)considered a variety of environmental servicesproduced by a forested watershed—water supplies,biodiversity, carbon sequestration, recreation, andflood mitigation. If land was converted, extensivedairy operations were the most attractive alterna-tive use with an estimated gross income of about53,000 colones per hectare per year—a bit over$175 per ha per year. Further analysis showed thatfarmers were willing to “sell” their conversionrights and maintain the forest under conservation



B O X 7 . 1 Additional Examples of Payments for Ecological and Environmental Services

Sources: McNeely 2006; USEPA 2006.

for a payment of roughly 23,000 colones perha per year (about $75). This money will com-pensate farmers for forgone income and allowthem to undertake additional conservationmeasures.

Further analysis estimated that a PES paymentof 2.70 colones per m3 of water (less than US $ 0.01) would be sufficient to collect enoughfunds from water consumers to pay the PESpayment of 23,000 colones per hectare per year.The PES charge is equivalent to an increase inthe water tariff of between 1 and 3 percent (waterrates vary by type of water use). This system isnow being implemented, and the PES charge isless that 2.5 percent of the total water bill.

It is sometimes surprising to note that evenwith so much interest in PES systems (often seenas a potentially self-financing answer to improvedenvironmental conservation), the actual examplesof successfully implemented systems are still quitesmall. PES systems usually focus on indirect usesof environmental resources (e.g., watersheds andwater supplies; reef conservation and fisheries).There are many examples of direct payments forenvironmental service use (as in the case of reefconservation and divers, for example). Raisingadmission fees for recreational uses is a fairlycommon example since the distance between theservice provider and the user is effectively “zero.”When the distance is greater and the services areprovided indirectly, the number of examples ofeffective PES systems decreases rapidly. Whenenvironmental services are provided at the nationalor global level, successful examples of PES systemsare even fewer in number. This example pointsout that PES systems are not a universal panacea,and that many countries are struggling to imple-ment the PES approach. China is no exceptionin this regard.

POTENTIAL USE OF PES IN CHINA

Although PES is considered relatively “new” inChina, as discussed earlier there is historic prece-dent for the government to make payments to

individuals to encourage them to take ecologicallyfriendly land use decisions or other investments—examples include many ECM projects, includingthe “Grain for Green” program. Whether theseinclude funds for improved terracing of erosion-prone uplands and loess areas, or grants to dis-courage deforestation in wooded areas, these arebasically supply-side PES systems, but ones thatare funded by revenues (taxes) collected by thegovernment. What was missing in the past wasthe explicit link between payments from the ben-eficiaries of improved ecosystem services, andtransfers/payments to those who provide theseservices. This is what makes the PES approachdifferent.

As previously mentioned, a critical first stepis the identification of the cause and effect linkbetween ecosystem conservation and managementand the provision of ecosystem services to bene-ficiaries. Once this is established, the paymentsystem can either reflect a payment for some desir-able ecosystem good or service, or a payment toprevent something bad from happening.5

Economists like the idea of “low hangingfruit”—easy victories that can be obtained withminimum effort. In the development of PESsystems we also look for low hanging fruit—examples where a system can be easily and quicklyimplemented. Such a situation would exist whenthe following conditions are met:

• The cause and effect link between providers ofecosystem services and the beneficiaries is clearand relatively close.

• The beneficiaries realize the importance andvalue of the ecosystem services.

• Mechanisms exist (both institutional and legal)to efficiently collect payments for the ecosystemservice from the beneficiaries and make transfer(payments) to the service providers.

• The institutional structure to collect paymentsand make transfers is in place.

• The number of service providers is manageableand the number of beneficiaries is clearly definedand not too large (or at least clearly defined asin the case of municipal water consumers).



• There is public and private support (on the partof both the government and individuals) forestablishing a PES system.

Even when a PES scheme makes perfect sense,there is the very real question of the political econ-omy of introducing something new, especiallywhen it involves collecting funds and then makingtransfers to another group. For instance, if onegroup of service providers starts to receive pay-ments when none was given in the past, otherservice providers in other areas may well demandpayments also. One answer is that in theory thosewho provide valuable ecosystem services shouldreceive payments. Rather than seeing this changein mind-set as an obstacle and using it as a reasonfor not attempting to implement a PES system,resource managers should recognize that newdemands for PES systems may arise. This isactually a good development in the long run asecosystem service providers and ecosystem servicebeneficiaries develop a deeper understanding ofand appreciation for the value of environmentalresources.

Illustration of a Potential PESApplication: The Case of LashihaiNature Reserve and Lijiang Old Town in Yunnan Province

The Lashihai Nature Reserve was established in1998 in Lijiang City, Yunnan Province, China.

The reserve’s main purpose is the protection ofthe Lashihai wetland (including its importantfreshwater lake), a Ramsar-listed wetland impor-tant to migratory birds. Major protection measuresfocus on fishing, poaching, and hunting withinthe wetland and threats from increased tourismto the wetlands and agricultural activities in thesurrounding areas.

In a recent study carried out by FEEM andConservation International in conjunction withChinese researchers and the Nature Conservancy(2007), a number of major environmental issueswere identified, including the following:

• The Lashihai watershed provides importantecological services, including biodiversity pro-tection (especially birdlife) and landscape/watersupply benefits in terms of improved waterquality in the nearby tourist town of Lijiang.

• Crops are eaten by protected bird species, result-ing in economic damages to local farmers.

• There are economic costs associated withchanges in agricultural practices to reducefertilizer input into the water system that servesboth the wetlands and Lijiang town.

There are a number of ecological/economic inter-actions in this case, only some of which are suitablecandidates for a PES system. Table 7.1 summarizesthe main ecological/environmental services, ser-vice providers, and service beneficiaries. The mostobvious candidate for a PES system is that betweenthe wetlands, agriculture, and the tourist town



T A B L E 7 . 1 Summary of EES, Service Providers, and Service Beneficiaries in the LashihaiCase Study, China

EES Service Service Providers Service Beneficiaries

Improved water quality for landscape services

Maintenance of birds’ biodiversity

Source: FEEM Servizi 2007.a. Global benefits are traditionally not included in local PES schemes.

Farmers around theLashihai Lake

Farmers around theLashihai Lake

Citizens of Lijiang tourism industry—Lijiang oldtown/visitors to the old town

Tourism industry—Lashihai Nature ReserveVisitors to the nature reserveGlobal benefits—biodiversity preservationa

of Lijiang. The Lashihai wetland is an importantsource of supplemental water flow to Lijiang (andits system of canals). Lijiang is a major tourismdestination (estimated at some 2,300,000 domes-tic visitors and 110,000 international visitors peryear) and both tourists and merchants in the townvalue the amenity benefit of good quality waterfor consumption and for landscape uses as it flowsthrough the town. Parts of the case study focusedon estimating willingness to pay by tourists forwater quality and water quantity services, andthe costs of improving agricultural practices tohelp maintain or improve water quality.

The link between the wetlands and surround-ing agricultural areas is two-fold: first, agriculturalactivities affect the quality of water entering thewetland, and second, the protected birds in thewetland forage outside of the wetland for food,and eat part of the crops in nearby fields. In addi-tion, there is a growing tourism industry in thewetlands, largely focused on bird watching. Theproblem with the wetland-farmer link is thatthere are benefits and costs on both sides, andthe number of yearly visitors to the wetlands isstill fairly small.

The Wetlands-Agriculture-Lijiang link

Lijiang is a major tourist destination and waterquantity and quality are important to the visitorexperience. The case study focused on the linksbetween Lijiang and agricultural practices of sur-rounding farmers. In this case the farmers are thepotential providers of the improved EES—betterquality water—and the visitors are the beneficia-ries. The study carried out a contingent valuationmethod (CVM) survey of the willingness-to-pay(WTP) of visitors to Lijiang for improved waterquality. A CVM survey is an analytical techniquethat relies on people’s responses to a hypotheti-cal question to estimate economic values. In theLijiang study the CVM survey determined therewas a median WTP of 8 yuan for “landscape”water quality, with an average or mean WTP of10.3 yuan.6

In contrast, a separate survey of the WTP ofvisitors to the wetlands for maintenance of bird

biodiversity in the nature reserve found the samemedian WTP—8 yuan—but a much higheraverage or mean value of 33.4 yuan (due in partto the very high maximum WTP results for bio-diversity viewing as reported in Table 7.2). Thismeans that on average wetland visitors wereoften willing to pay more per person for bird bio-diversity conservation than visitors to Lijiangtown were willing to pay for better “landscape”water quality. Of course, the number of visitorsto Lijiang town far outnumbered the number ofvisitors to the nature reserve.

Looking at the situation of both the service pro -viders (largely farmers around the Lashi Lake) andthe service beneficiaries, it is evident that the twomain ecological services—water quantity/qualityand biodiversity (largely birds) conservation—have quite different stories. It appears mucheasier to use a PES scheme to fund the provisionof water for landscape services and good waterquality in Lijiang old town than it would be tofund biodiversity conservation and farmer com-pensation for bird damage. The study estimated,based on the WTP results and the number ofannual visitors, that environmental service ben-eficiaries would be willing to pay from 32 to 42 million RMB per year for landscape and waterquality services, but only between 500,000 and2.1 million RMB per year for biodiversity pro-tection (largely bird life).



T A B L E 7 . 2 Suggested Increase in Lijiang Old Town Visitors’ Fee to Fund PES Scheme

Domestic International Total

Increase 1% 5%RMB per person 0.4 2Number of paying

visitors 2,315,700 109,680Funds generated

(RMB/year) 926,280 219,360 1,145,640Funds generated

(US$/year) 117,174 27,749 144,923


Funding a PES scheme

Based on these results, the study concluded thata small increase in the fee presently chargedvisitors to Lijiang would be sufficient to raiseenough money to pay for needed agriculturalextension services and other measures (includingpromoting organic agriculture) to help the agri-cultural sector provide the desired ecologicalservices (improved water quality and quantity).Thus a PES system seems quite feasible, given thedirect link between agricultural practices andthe ecological service of improved water quality,and the very large number of visitors (servicebeneficiaries) to Lijiang. It is important to note,of course, that water quality in Lijiang old townis also affected by the town itself. To address waterquality more broadly in Lijiang will require mea-sures to both improve the quality of water com-ing from agricultural areas, as well as to managemunicipal sources of pollution such as sewageand wastewater.

Since the visitors already pay a fee, it wouldbe fairly easy (and low cost) to impose the extraecological service charge. In fact, the study cal-culated that if the average visitor fee of 40 yuanwas increased by 1 percent for Chinese visitors(to 40.4 yuan) and 5 percent for foreign visitors(to 42 yuan), this would produce enough rev-enue to implement the PES scheme and pay therequired transfers to service providers (Table 7.2).Experience in other parts of the world suggests thatthe proposed increase is very modest and shouldhave no impact on the number of visitors. In fact,a substantially larger environmental surchargecould probably be added to the visitor fee andstill have no negative impact on demand.

The agriculture-wetlands link

The focus of the economic analysis of the agri-culture-wetlands link was on the damage createdby birds eating grain from farmers’ fields. Thesecosts were estimated to be as high as 1.8 millionyuan per year (about $233,000). Since the aver-age number of visitors to the reserve is still fairly

small (estimated at 50,000 Chinese and 15,000international visitors per year), a substantial feewould have to be collected per person in order toimplement a PES system. This fee, which wouldhave to average about 28 yuan per visitor, con-siderably exceeds the average stated WTP asdetermined by the CVM survey mentioned ear-lier (a median value of 8 yuan).

The authors of the study concluded that evenwith a two-tiered pricing system for wetlandvisitors (a higher charge for international visitorsthan for national visitors), a PES system for theagricultural-wetlands link would only be partiallysustainable, and that additional funds would berequired from other sources. If domestic visitorswere charged 8 yuan and international visitors werecharged 40 yuan, this would raise about 1 millionyuan per year, about half of what is needed tocompensate farmers for bird damage to their crops(Table 7.3). The full report of the case study(FEEM Servizi 2007) has much more detail onthe study and the estimated values.

The Lashihai case study pointed out a numberof useful lessons. Establishing a PES system iseasier when the cause-effect link is clear, the num-ber of service providers is manageable, and existinginstitutional structures can implement a newpayment system (such as the already existingvisitor fee at Lijiang old town). In contrast, itwill be much more difficult to introduce a PES



T A B L E 7 . 3 Suggested Entrance Fees to Lashihai Nature Reserveto Fund PES Scheme

Entrance Fee Entrance (RMB yuan) Fee (US$)

Number of domestic tourists: 50,000.00 8 1

Number of international tourists: 15,000.00 40 5

Total revenue 1,000,000 126,500


scheme in the Laishihai Nature Reserve since thenumber of service beneficiaries is small and apayment system is not in place.

The case study further discusses the institu-tional arrangements in Lijiang old town and in theLashihai Nature Reserve, and how existing insti-tutional systems will affect the implementationof any PES system. As the study points out, thereare other political economy concerns over theimpact of introducing a new financing mecha-nism on the rest of the society beyond the directservice providers and beneficiaries in Lashihaiwatershed—for instance, the communities out-side Lashihai area who provide drinking wateror other environmental services to Lijiang oldtown. These concerns have to be addressedappropriately in order to build up enough polit-ical momentum for launching a PES system andfacilitating its smooth implementation. For moredetails, see the full case study report and support-ing institutional analysis and implementationguidelines (FEEM Servizi 2007; ConservationInternational, the Nature Conservancy, andFEEM Servizi 2007).

RECOMMENDATIONS

Although PES schemes are not a universal panaceaor always easy to introduce, they offer potentialopportunities to enhance and complement exist-ing efforts (usually some form of ECMs) to imple-ment improved ecosystem conservation in China’swatersheds. The chapter offers the following rec-ommendations to help improve existing practicesof eco-compensation.

• Given the urgency of protecting water supplyby improved management of ecosystems in theupper reaches of river basins, China shouldcontinue to expand its ecological conservationprograms through expanded use of marketmechanisms. The current practices of publictransfers for ecological conservation (ECM pro-jects) should be encouraged, especially when the

ecosystem service providers and beneficiaries arefar apart and their links cannot be explicitlydefined, or where there are obvious povertyalleviation benefits.

• The traditional supply-side ECM approach,relying heavily on transfers of general publicfunds, may be less efficient and effective thanother approaches, and there are long-term con-cerns about their financial sustainability. Thisis especially true in those situations where themarket can play a role in collecting paymentsfrom ecosystem service beneficiaries and allocat-ing funds to the service providers. When theseconditions hold, market-oriented approachessuch as PES should be considered.

• PES has the potential to be more widely used inChina, especially in small watersheds, and playan important role in conserving ecosystems andprotecting water-source areas. If designedand managed well, PES can be self-financing,and efficient, and reduce demands on directgovernment involvement in financing day-to-day operations (both major requirementsof ECM schemes). The government shouldpromote efforts to create PES schemes.

• Political will is crucial in introducing a PESscheme or other innovative financingschemes. However, broader political economyconcerns (particularly regarding introducing anew fee) can make introducing a new PESscheme difficult. These issues must beaddressed upfront, and any new PES schemeshould be monitored and analyzed. In addi-tion, the government should recognize andreward those groups that are leaders in tryingnew approaches, including PES schemes.

• Governance mechanisms and institutionalarrangements are also crucial in implementingPES schemes. Building on existing institutionaland social systems is often the most cost-effectiveway to make a PES scheme work; establishinga new revenue collection and payment distri-bution system is costly and time consuming.A simple benefit-cost analysis can be done toshow if the institutional costs of any new PES



scheme are justified by the expected increasein net revenues available for transfer (revenuesless collection/administrative costs).

Endnotes1. Note that one sees three different terms used for the “E”

in PES—environmental, ecological, or ecosystem—but the idea is the same. In the current literature the termenvironmental is most commonly used. In this work weoften use the three terms interchangeably.

2. There are specific ordinances or rules issued by rele-vant central government agencies or local governmentsto promote the use of ECM; examples include theOrdinance of Converting Farmlands to Forests issuedby the State Council in 2002, the Management ofNational Forestry Ecological Compensation Fundsissued jointly by the Ministry of Finance and the StateForestry Administration in 2004, and the Guidance of

Ecological Compensation Pilot Projects issued bySEPA in 2007.

3. A useful discussion of these factors is also found in theFEEM case study paper (2007) and Pagiola and Platais(2007).

4. Useful guidance and examples are provided in Pagiolaand Platais (2007).

5. Note that the traditional polluter-pays approach cham-pioned by the OECD in the early 1960s and nowcommonly used in China today is a variant of the PESapproach, but one where the creator of pollution ischarged an amount that is in theory linked to the mag-nitude of damage done to others. It is not intrinsically aPES system, since the polluter is charged for damage cre-ated, and the beneficiaries of the unpolluted service arenot asked to help pay for the service.

6. A median value is the point where half of the respondentswere willing to pay at least this amount, while the meanor average amount is the total WTP of all visitors dividedby the number of visitors.



Water pollution in China is a pervasive problem that threatens the health ofecosystems, increases the cost of treating water for drinking, industrial, andcommercial uses, and exacerbates water scarcity problems, especially in theNorth. Yet water pollution control has not received as much attention asother water-related issues such as flood control, drought remediation, waterdiversion, and soil erosion. Given the serious impacts of water pollution, thegovernment needs to take stronger action to address it.

Effective water pollution control yields multiple benefits in protecting boththe natural environment and human health, improving water quality for var-ious uses, and alleviating water shortages. This chapter examines the com-plexity and difficulty of water pollution control; describes other nationalattempts to control pollution; identifies and discusses a number of institutionaland policy issues that need special attention; and presents recommendations.

SERIOUSNESS OF WATER POLLUTION

In recent years, water pollution has emerged as one of the most serious envi-ronmental issues in China. In its strategy and other official documents, thecentral government has placed it at the top of the list of seven major environ-mental problems facing the country (SCCG 2006). Since the mid-1990s,COD (chemical oxygen demand) reduction has been one of two major totalemission control targets at the national level (the other is SO2). Even so, totalCOD emissions have increased since the early 1990s, largely due to an increasein emissions of untreated municipal wastewater. In spite of over a decade ofeffort, it was not until 2007—when total 2007 COD discharges were reportedto be 3.14 percent less than in 20061—that this trend began to be reversed.

Nevertheless, overall water quality in China remains poor. In 2006, onlyone-fifth of China’s monitored river sections achieved Grade I or II waterquality standards—the highest quality—while more than one-third wereGrade V or V+—the most polluted categories and unsafe for any use. In

Controlling Water Pollution8

�


recent years, there have been increases in theshare of river sections at both ends of the distri-bution. During the 1991–2006 period, the per-centage of sections rated Grade I or II increasedfrom 4 to 24 percent, while the portion rated asGrade V and V+ also increased slightly, from 31 to 33 percent (Figure 8.1).

Although statistical data show some generalimprovement in water quality in monitored sections, there has actually been deterioration inseveral major rivers in the last five years. In north-ern China in 2001 and 2005, the percentage ofmonitored sections with water quality worse thanGrade III was consistently above 60 percent, espe-cially in the Songhua and Huai rivers, where thepercentage in these categories actually increased(Figure 8.2). In the Pearl and Yangtze rivers, twomajor southern rivers that are relatively clean, theworst water quality categories rose by a large mar-gin (Figure 8.2). In 2006, more than 60 percent oflarge lakes and all urban water bodies were in somestage of eutro phication. Conditions were particu-larly serious in several large lakes, including theTaihu, Dianchi, Chaohu, and Baiyangdian.

Drinking water sources were threatened byincreasing pollution of rivers flowing throughcities and towns, particularly where industriesare relatively well developed. According tomonitoring results in 2006, among 382 majordrinking water sources in 107 key cities, only72.3 percent met drinking standards, decreas-ing from 80 percent the year before. Waterpollution accidents—such as in Lake Tai in theearly summer of 2007—occurred frequentlyand caused water shortages with severe impactson social and economic development. Theenvironmental cost of water pollution was esti-mated at 286 billion yuan in 2004, equivalentto 1.7 percent of GDP in that year (SEPA andNBS 2006).

CAUSES OF POLLUTION AND KEY CHALLENGES FOR POLLUTION CONTROL

The effectiveness of water pollution manage-ment is highly correlated with a country’s stageof economic development. In general, poorer

C O N T R O L L I N G W A T E R P O L L U T I O N


Sources: China Statistical Yearbook (various years); China Environmental Status Bulletins (various years); WorldBank 2001.Note: Grades I–III refer to water that is safe for human consumption after treatment; grades IV–V refer to water thatis safe for industrial and irrigation use; and grade V+ refers to water that is unsafe for any use.

F I G U R E 8 . 1 Water Quality in Chinese Rivers, 1991–2006

0

10

20

30

40

50

60

70

80

90

100

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Grades I – II Grades III – IV Grades V – V+

2001 2002 2003 2004 2005 2006

Per

cent

countries do less to control pollution, whilewealthier countries do more. The same patternhas also been observed within large countries likeChina—poorer regions or areas often do less tocontrol water pollution, while richer areas orregions do more (even if they face bigger chal-lenges, in part due to the same factors that makethem richer). Important factors determining theextent of water pollution and its control includethe aggregate level and regional variations in eco-nomic activity, population growth, and urban-ization; the region’s natural endowment of waterresources; and the effectiveness of institutionaland policy arrangements.

The serious water pollution problem in Chinais attributable to various institutional and policyfailures. These include (a) poor law enforcementand compliance due to weak institutional capac-ity; (b) failure to implement water pollution pre-vention and control plans; (c) lack of incentivesfor wastewater treatment; (d) malfunctioning ofthe wastewater discharge control system, withproblems associated not only with the issuance ofpermits, but also with monitoring and enforce-

ment; (e) the influence of local and sectoral inter-ests in river basin management, as well as the lackof integrated planning and local commitments;(f ) increasing but unchecked pollution fromtownships, villages, and nonpoint sources; and(g) insufficient and spatially imbalanced invest-ment in wastewater treatment. Some of the abovepoints—such as low incentives and weak institu-tional capacity for water management—were dis-cussed in previous chapters. This section focuseson the remaining issues.

Poor Water Quality Despite ReportedHigher Compliance

According to official statistics, mainly from theChina Statistical Yearbooks, the three compli-ance indicators—EIA execution, emission stan-dards for industrial sources, and urban sewagetreatment—are all at a good level. In 2006, thefirst two indicators were reported to reach 90 per-cent and more, while the third was over 50 per-cent. However, water quality in the major waterbodies remains low. The sharp contrast between



Source: China Environmental Status Bulletins (2001–05).Note: Grades I–III refer to water that is safe for human consumption after treatment; grades IV–V refer to water thatis safe for industrial and irrigation use; and grade V+ refers to water that is unsafe for any use.

F I G U R E 8 . 2 Percentage of Sections with Water Quality Grade IV to Grade V�, 2001 and 2005

0

10

20

30

40

50

Per

cen

t 60

70

80

90

100

Pearl River YangtzeRiver

SonghuajiangRiver

Huai River Hai River Yellow River Liao River

2001 2005

the poor water quality and high reported com-pliance reflects the problems of environmentalmanagement and reporting systems. An inspec-tion of the implementation of environmentallaws by the NPC revealed that the compliancerate for EIA is actually only about 50 percent,while compliance with emission standards isbelow 70 percent. Compliance and enforce-ment are no doubt the most important issuesto be addressed if water pollution is to be con-trolled and solved.

Failure of Water Pollution Preventionand Control Plans

Many water pollution prevention and controlplans have been prepared at the national, local,and river basin levels. For instance, the centralgovernment and most local governments havedeveloped five-year plans for water management.All the major transprovincial river basins also havesuch plans developed by RBMCs. These plansusually have four major components: (1) waterquality targets, (2) total emission control targets,(3) construction projects and financing, and(4) regulations to be enforced.

However, many plans have failed to achievetheir water quality and pollution control targets.For example, the Huai River basin was the firstriver basin in China to involve a major planningeffort for water pollution control. Its experienceis summarized in Box 8.1.

An evaluation of the implementation of theWater Pollution Prevention and Control Plan(WPPCP) in the Huai River basin identifiedseveral reasons for the poor implementation ofwater pollution control plans. First, water qual-ity targets were too ambitious and lacking intechnical details necessary for implementation,indicating that planners tended to underestimatethe difficulty of addressing water pollution prob-lems. Second, the four components mentionedabove (water quality targets, emission control tar-gets, construction, and regulations) were not ade-quately coordinated. Third, although most plansincluded a financial budget for emissions control,they typically specified only the total investmentrequired, without clear assignment of fundingresponsibility between governments and otherentities at various levels. Fourth, the supervisionand implementation of the financed projects,as well as their subsequent operation, were very



The Huai River is the only river basin for which three consecutive five-year river basin Water Pol-lution Prevention and Control Plans (WPPCPs) (1996–2010) have been prepared and implemented.The State Council has also issued the Provisional Decree of Water Pollution Prevention and Con-trol for Huai River. However, an evaluation of the first two five-year plans (1996–2005) found thatthe water quality and total emission control targets were not achieved. For instance, the 9th FYP’s(1996) water quality target for 2000 was to achieve Class III for the entire main stream. However,by 2005, the water quality at 80 percent of the national monitoring sites in the basin was still atClass IV or worse.

Moreover, the financing plans for wastewater treatment laid out in the 9th and 10th five-yearWPPCPs also failed. Although these plans expected local governments to fund the program, therewere no specific allocations from the central to the local governments for this purpose. As a result,while the central government assigned the funding responsibility, the local governments waited forthe funds to be allocated from the central government. Because of weak supervision, poor coordi-nation at different government levels, and lack of a monitoring mechanism for financial perfor-mance, the funding was totally inadequate.

In addition, all three plans specified goals for total emissions control. However, the goals appliedonly to industrial and municipal point sources. Nonpoint sources and management of water quan-tity were not considered, making it impossible for ambient quality goals to be achieved.

B O X 8 . 1 Implementation of Water Pollution Control Plans for the Huai River Basin

weak. And fifth, there was no assessment of theeffectiveness and efficiency of the plans, and nopenalties in case plan implementation failed. Morebroadly, pollution control plans were poorly inte-grated with plans for water resource manage-ment and land use, as well as more general socialand economic development plans in the sameriver basin. The evaluation of the Huai Riverbasin plans indicates that without good inte-gration with other water-related plans, theeffort to achieve pollution control cannot besuccessful.

Integrated Planning and LocalCommitments Are Lacking

While there are some successful stories of inte-grated river basin management, they are few innumber and generally only apply to small water-sheds. One such good example is the West Lakeof Hangzhou City, where the municipal govern-ment established a basin-wide management,plan ning, financing, and administrative systemto successfully treat wastewater, control land usein the catchment of the lake, remove significantpoint sources of pollution (primarily factories),restore streams and wetlands, and control pollu-tion from tourism. The success of the West Lakeprogram, however, was primarily due to the factthat the municipality covers the lake’s entirecatchment area.

Most river basin management in China isdriven by local and sectoral interests. Lack of inte-gration and cooperation across jurisdictions is acommon problem. Building popular and politi-cal support for integrated river basin manage-ment (IRBM) is still at an early stage in China(for a recent publication promoting IRBM inChina, see Wang et al. 2007c).

According to China’s Environmental Pro-tection Law and the 2008 Water PollutionPrevention and Control Law (WPPCL), localgovernments are responsible for local environ-mental protection and for funding the mainshare of local water pollution control invest-

ments (in line with the polluter-pays principle).This is also specified in all river basin WPPCPs.However, since the damage caused by water pol-lution usually affects downstream users outsideits jurisdiction (an example of an environmentalexternality), pollution control is invariably a lowpriority in local government budgets. In addi-tion, the current mandate and responsibility ofwater resource management authorities at boththe central and local levels puts a greater focus onwater diversion and erosion control than onreducing water pollution, even though the latter,particularly where transboundary impacts arepresent, is typically the most important issuebasin-wide.

The Wei River, a major tributary of the Yel-low River in Shaanxi Province, illustrates thefailure caused by the predominance of local andsectoral interests over basin-wide objectives. Theriver basin has been plagued with floods, soilerosion, water shortages, and pollution for a longtime. Many of these problems are transbound-ary, affecting lower reaches of the Yellow River.Water pollution is the most serious. In 2006,water quality in nine out of thirteen monitoringstations was worse than Grade V, and 74.9 per-cent of the Wei River did not meet the assignedwater function zoning standards.

Given the importance of the Wei River’swater problems, an integrated river basin man-agement plan was prepared in 2002 and approvedby the State Council. As shown in Table 8.1, theplan included an investment of 22.6 billion yuanfor flood control, water supply, erosion control,and pollution control, of which 62 percent wasto be funded by the central government, primar-ily to address transboundary problems. How-ever, the budget for water pollution preventionand control only accounted for 14 percent of thetotal water-related investment, and only 20 per-cent of the water pollution control budget wasfrom central government funds. The rest wasexpected to come from local budgets, but thesefunds did not materialize. The failure of local gov-ernments to carry out their financial obligations



has so far meant that the pollution control com-ponents of the plan have not been implemented(Working Group of Wei River Basin Compre-hensive Control Plan 2002).

Increasing Pollution from SmallTowns and Nonpoint Sources in Rural Areas

As mentioned in Chapter 2, rural areas of Chinahave been suffering from water pollution fromTVIEs. With accelerated urbanization, waste-water from small towns is also an increasinglysignificant pollution source in rural areas. Chinahas more than 19,000 established townships(China Statistical Yearbook 2006) with a popu-lation of about 200 million people.2 In most ofthese small towns, wastewater is dischargedwithout treatment in any form. Untreated waterpollution from these small towns has particularlysevere impacts because it more directly affectsecological systems and agricultural production.However, China still lacks a well-developednational program to deal with water pollutionfrom small towns, including basic monitoringand reporting. While China has increased efforts

to control water pollution, they are concentratedin urban areas, especially the large and mid-sizedcities. In the 11th FYP, sewage treatment targetsare only set for large and mid-sized cities, andthere is no plan for small towns. In addition, asalso mentioned in Chapter 2, widespread non-point water pollution in rural areas is still out ofcontrol in general, which has imposed seriousimpacts on the rural environment.

The case of the Qixinghe Natural Reserveillustrates the weakness of the water pollutioncontrol program in rural areas. The QixingheNatural Reserve in Heilongjiang is one of thebest preserved and representative wetlands at thenational level. Based on national regulations, theQixinghe River, the reserve’s main water source,should meet Grade I standards. Yet it has expe-rienced severe water pollution in the past fewyears. Recent water quality monitoring demon-strated that water quality was as low as Grade IVand V (Table 8.2).

Field investigation revealed that the mainpollution sources were industrial enterpriseslocated upstream, whose untreated wastewaterdischarges far exceeded national emission stan-dards. Besides, there were many nonpoint sourcesin surrounding areas. All the sources were locatedin the countryside, where neither MEP nor thelocal EPBs have taken serious action to controlemissions.

Insufficient and Spatially ImbalancedWastewater Treatment Investment

In addition to insufficient total investment inwastewater treatment (mentioned in Chapter 3),wastewater treatment capacity is unevenly dis-tributed. Figure 8.3 shows wastewater treatmentinvestment in the provinces along the YellowRiver. One can see that investment is concen-trated in downstream and coastal areas (eco-nomically rich areas), while funding for sewagetreatment is insufficient in the upstream areas,which are less developed and where water qualityis bad and downstream environmental impact is



T A B L E 8 . 1 Planned Water-Related Investment Sharesbetween the Central Government and Local Sources in Wei River Basin

Ratio of Central Government to

Spending Items Local Investment

Water Saving 2:01Water Pollution Control 1:04Water Use 2:01Flood Control 8:02Water and Soil Conservation 7:03Ecosystem and Dry Farming 1:01Total investment (billion yuan) 22.6Share of central/local government (%) 62.4%/37.6%

Source: The Integrated Control Plan of Wei River Basin in Shaanxi Province(Working Group of Weihe River Basin Comprehensive Control Plan 2002).

high. This is partially because rich areas generatemore financial resources from their higher tariffs.

As further shown in Figures 8.4 and 8.5, largedifferences exist in installed sewage treatmentcapacity by province and by city. This demon-

strates that the rich and developed provinces andcities, mostly located in lower reaches of riverbasins, enjoy much higher wastewater treatmentrates than their poor counterparts. Wastewatertreatment rates in mid- and small-sized cities are



T A B L E 8 . 2 Water Quality of Qixinghe Nature Reserve, 2007

ChemicalTotal Ammonia Oxygen

Monitoring Site Monitoring Time Oil Phosphorous Nitrogen Demand

Core Area 3/8/2007 0.26 (IV) 0.198 (III) 0.250 (II) 32.0 (V)24/8/2007 0.05 (III) 0.026 (II) 0.627 (III) 27.6 (IV)27/8/2007 0.15 (IV) 0.064 (II) 0.638 (III) 36.0 (V)30/8/2007 0.05 (III) 0.068 (II) 0.337 (II) 27 (IV)

Entrance 3/8/2007 0.26 (IV) 0.198 (III) 0.250 (II) 32.0 (V)24/8/2007 0.09 (IV) 0.202 (IV) 0.640 (III) 26.9 (IV)27/8/2007 0.17 (IV) 0.148 (III) 0.350 (II) 20.1 (IV)30/8/2007 0.26 (IV) 0.356 (V) 1.72 (V) 26 (IV)

National Surface I ≤0.05 ≤0.02 ≤0.15 ≤15Water Quality II ≤0.05 ≤0.1 ≤0.5 ≤15Standard III ≤0.05 ≤0.2 ≤1.0 ≤20(GB3828-2002) IV ≤0.5 ≤0.3 ≤1.5 ≤30

V ≤1.0 ≤0.4 ≤2.0 ≤40

Sources: The monitoring was conducted by Renmin University in 2006–07. The 2007 monitoring was partly fundedby the Heilongjiang provincial government, ADB, and GEF for the Sanjiang Plain Wetlands Protection Project.

GANSU

QINGHAI

SICHUAN

NINGXIA

HEBEI

HUBEI

ANHUI

ZhengzhouZhengzhou

R.R.

Wei R.Wei R.

BaotouBaotou

DongshengDongsheng

HohhotHohhot

InteriorInteriorbasinbasin

Yellow R.

Yellow R.

Wei R.

R.

Yellow R.

Yellow R.

QinghaiHu

Interiorbasin

Bo Hai

Hangshui

Baotou

Dongsheng

Luoyang

Zhengzhou

Xinxiang

Hohhot

Taiyuan

Shijiazhuang

Tianjin

BEIJING

JinanYinchuan

Lanzhou

Xining

Yellow R.Longyang

Gorge

Xining

Xi’an

MONGOLIA

0

0 100 200 miles

300 kilometers

CITIESPROVINCE CAPITALSNATIONAL CAPITALPROVINCE BOUNDARIESINTERNATIONAL BOUNDARY

SEWAGE TREATMENTINVESTMENTS, BY PROVINCE

TOTAL(100 MILLION

YUAN)

PER CAPITA(YUAN PERPERSON)

YELLOW RIVER BASIN

6991

5093

1770

1034

6991

21

87

HENAN

SHANXI

NEI MONGOL

SHAANXISHANDONG

F I G U R E 8 . 3 Provincial Sewage Treatment Investments in Yellow River Watershed (RMB 100 million yuan)



Sources: Per capita GDP is obtained from China Urban Yearbook, 2004. Centralized sewage treatment rates are fromChina Urban Development Statistics Yearbook, 2004.

F I G U R E 8 . 4 Centralized Sewage Treatment Rates and per Capita GDP in 14 Provinces inNorthern China, 2003

Source: China Urban Development Statistics Yearbook, 2004.Note: Super city = more than 2 million population; mega city = 1 to 2 million population; big city = 0.5 to 1 millionpopulation; mid-sized city = 0.2 to 0.5 million population; small city = less than 0.2 million population.

F I G U R E 8 . 5 Centralized Sewage Treatment Rates by City Size in 2003 (%)

0

10

20

30

40

50

60

Beijing

Tianjin

Shand

ong

Shanx

i

North

ern

Jiang

su

Inne

r Mog

olia

Jilin

Hebei

Henan

Liaon

ing

Shaan

xi

North

ern

Anhui

North

ern

Hubei

heilo

ngjia

ng0

5

10

15

20

25

30

35

Left axis

Co

nce

ntr

ated

sew

age

trea

tmen

t ra

te (

%)

Right axis

Per cap

ita GD

P(R

MB

, tho

usan

ds)

42.62 41.77

19.36 18.07 15.66

0

10

20

30

40

50

Super city Mega city Big city Mid-sized city Small city

badly lagging (by half or more) behind those ofcities with populations exceeding 1 million(mega and super cities).

Such a spatial imbalance is the result of bothmarket and policy failures. In order to effectivelyimprove water quality in a river basin, water pol-lution control should be planned, financed, andmanaged for the river basin as whole. This willrequire more fiscal support through governmenttransfers, in particular for the poorer upstreamcities and towns. But the existing pricing andfunding policies fail to promote adequate invest-ment in upstream regions, which compoundsthe market failure.

INTERNATIONAL EXPERIENCE

There is extensive international experience withwater pollution control. Although almost allgovernments tend to initially focus on the prob-lems of water supply (demand for clean water isvery evident and there is a willingness-to-pay forclean water for domestic, municipal, and indus-trial uses), water resource managers soon realizethat there is a direct link between the sustainableavailability of clean water and how water pollu-tion is controlled.

International experience in water pollutioncontrol has evolved over the last several decades.Initially, it was characterized by a more traditionalcommand-and-control approach of setting stan-dards coupled with a “supply-side” approach ofinvestment in water pollution control infrastruc-ture (especially treatment of urban and industrialwaste water). It has since moved toward a greaterreliance on a mix of command and control witheconomic approaches such as polluter-pays typelevies and other economic instruments to pro-mote the desired investments and behaviors.

OECD Countries as Leaders in WaterPollution Control

The rich OECD countries have done the mostto address water pollution issues. Not only doestheir wealth allow them to make the required

investments, but their citizens also demand acleaner water environment and make theirdemands known through the political process.The actual approaches used have varied fromcountry to country. The choice depends on var-ious factors, including the size of the country,social/institutional setup, and the political sys-tem. A review of OECD countries (Gillespie2007) shows that while water quality standardsare usually set at the national level, the responsi-bility for ensuring compliance with those stan-dards is normally delegated to subnationalgovernments. This is seen in most countries witha federal structure such as Austria, Belgium, Ger-many, and the United States, but also in suchcountries as Denmark, Italy, and Poland.

In some cases, however, the national environ-mental agency has regional branches, with staffmembers responsible for enforcement, as in thecase of France. Other countries, such as Ireland,have a relatively autonomous enforcement agency,with regional branches that are entirely part of itsstructure. And finally, there are some countrieswhere all water pollution control activities arecarried out by a central/national office and nosubnational structures exist.

Role of the Public in Compliance withPollution Control Measures

A key test of the effectiveness of different institu-tional approaches is the degree of compliance withenvironmental standards. While the experience ofOECD countries has been mixed, one key con-tributing feature is the need to generate effectivesupport from the general public. In some cases thepresence of a technically aware, politically empow-ered public has been more important than formallegislative or regulatory standards imposed by en -vi ronmental authorities. This is perhaps best illus-trated in the case of Japan (see Box 8.2).

Control Mechanisms

Traditionally, efforts to control water pollutionhave primarily employed command-and-control



methods. These may take the form of permits toestablish an industrial facility with a given max-imum discharge limit for defined pollutants, aswell as the establishment of effluent standards tobe monitored and subjected to periodic inspec-tion. Failure to comply with standards may resultin fines or other legal penalties.

In recent years, increasing attention has beengiven to the implementation of the polluter-paysprinciple, whereby the polluter is levied a chargebased on levels of pollution discharged. Theadvantages of this approach are thought toinclude fairness, the prospect of raising revenue,and the potential for achieving a given reductionin pollution at the lowest possible cost.

However, there have been serious difficultiesin implementing the polluter-pays approach. Inparticular—and in common with other regula-tory methods based on monitoring of emis-sions—there have been major administrativedifficulties in ensuring compliance, particularlyfor nonpoint source emissions. In response,while there has continued to be an increase inthe use of pollution levies, the main growth hasbeen through the imposition of taxes on inputs,or on materials that in the process of production(or use) tend to generate pollution (so-calledproduct charges). Good examples are taxes onpesticides and fertilizers; such taxes have beenused for several years in Scandinavian countries.By taxing pesticides and fertilizers, farmers havean incentive to use these expensive inputs morecarefully and thereby reduce environmental pol-

lution. The funds collected from these inputtaxes can also be used to address environmentalissues.

Although economists prefer the polluter-paysapproach, since it offers the chance of achievingthe goal of pollution reduction in a least-costmanner, environmental managers often distrustit. In contrast, water quality managers often pre-fer command-and-control approaches since theyappear to offer greater certainty in reachingphysical goals (ambient quality standards) evenif the cost is higher. The choice of policy instru-ment involves a tradeoff between potential eco-nomic savings against the ease (and feasibility) ofimplementation. For example, the use of watereffluent charges in Germany has been effective inreducing pollution. Germany has also promotedincreased investment in pollution-reducing bestavailable technology (BAT) by offering rebates.Effluent fee rebates are designed to encouragecompliance with compulsory BAT standards,with part of the investment expenditure in BAT-conforming treatment plants being eligible forthe rebate. A drawback of this system is that itreduces the incentive function of effluent fees, butit is probably a necessary price to pay to improveindustrial compliance.

In some OECD countries, such as Belgiumand France, the revenue from pollution and per-mit fees goes to the treasury (which is also in linewith the principle of preventing conflicts of in -terest, an issue that has been associated with theChinese pollution levy system). However, in



Public awareness and empowerment are basic requirements for effective collaboration between gov-ernment and industry, as illustrated by Japan’s experience in the early post–World War II years withthe major health impacts of water pollution (Minamata disease). Historically, the central governmenthas typically lagged behind sectoral or local government initiatives, and only strengthened environ-mental standards when public pressure combined, in some instances, with industrial self-interestforced it to do so. Motivated by economic self-interest on the industrial side, with pressure from anincreasingly concerned domestic population, standards are determined on the basis of informed tech-nical opinion. Once established, there is almost complete compliance. Building up trust between gov-ernment and industry has been shown in Japan to be an essential element of efficient environmentalmanagement, and public empowerment has been integral to this process.

B O X 8 . 2 Public Participation and Compliance with Environmental Standards: The Case of Japan

Australia, Finland, Ireland, and the U.K., a sig-nificant part of the environmental agencies’ rev-enues (in some cases up to 65 percent of budgets)is raised directly from permit and inspection feespaid by the polluters (Gillespie 2007).

Clearly inconsistent with the PPP approach,a large proportion of economic instruments arein the form of subsidies instead of taxes; forexample, low-interest loans and tax holidays toencourage investment in pollution control equip-ment. Although there is always the potential forsubsidies to have a distorting effect on invest-ment decisions, China has actively used subsidiesto promote greater investments in pollution-control activities.

EMERGING INSTITUTIONAL AND POLICY ISSUES

A number of issues in water pollution control areunderestimated or even overlooked. These issuesinclude the following: carefully defining the ob -jectives of the Water Pollution Prevention andControl Law; providing more reliable and com-plete information on pollution sources; empha-sizing the linkage between water pollution andunsafe drinking water sources; strengtheningthe deterrent function of current legislation andenforcement systems for managing water pollu-tion; promoting routine pollution preventionover after-incident treatment; and addressing therelationship between the polluter-pays principleand government responsibility at the regionaland national level, especially in those areas wheregovernments have some responsibility due totheir past activities.

Alignment of the Law’s Objectiveswith Its Reach

There is a mismatch between the objective of thenewly amended Water Pollution Prevention andControl Law (WPPCL) and its legal reach. Asstated in the WPPCL, its objective is to preventand control water pollution, protect and improve

the environment, provide safe drinking water,and promote sustainable economic and socialdevelopment. In practice, achieving such multi-ple objectives is almost impossible because theobjectives—such as public health, resource uti-lization, and economic and social development—are too broad (and normally the targets of otherrelevant laws and programs). The WPPCL hasneither the authority nor the capacity to addressthese targets, and indeed there is nothing in it todescribe how to meet them. It would be moreappropriate for the WPPCL to have more nar-rowly focused objectives, such as those found inthe U.S. Clean Water Act, whose objective isthe “restoration of physical, chemical, and bio-logical integrity” of waters.

Pollution Source Information and Management

Water quality has been regarded as the primarygoal of most WPPCPs. Official weekly and annualreports on the water environment emphasize dataon water quality. Although water quality is clearlythe ultimate goal of water pollution control, animprovement in water quality depends on effectivecontrol of pollution sources. However, there areonly partial information datasets on sources ofpollution. The problem is compounded becausethree major water authorities—MWR, MEP, andMHURC—are all involved in water quality man-agement, and cross-sectoral coordination is oftena challenge.

After many years of effort, information isnow available on most of the main point sourcesof pollution. Four existing and ongoing environ-mental information systems are used by MEPand local EPBs: (1) the environmental statisticalprogram, (2) the pollution levy program, (3) theemission reporting and permit program, and(4) the environmental impact assessment (EIA)program. Information from these sources is col-lected by local EPBs and transmitted to andmanaged by MEP. Although the information isimperfect, compiling and comparing emissions



information from various programs could formthe starting point for establishing a unified infor-mation system of pollution sources, promotinginter-agency information sharing, identifying fail-ures in pollution control programs, and devel-oping a more comprehensive strategy for waterpollution control.

Safe Drinking Water and Pollution Control

Frequent water pollution incidents have recentlystimulated governmental actions to secure thesafety of drinking water. In the Decision onImplementing the Scientific Development Strat-egy and Strengthening Environmental Protectionreleased by the State Council in December 2005,drinking water safety was highlighted as a high-priority task. But the response of local govern-ments is usually to search for alternative sources ofsupply—such as water transfer and undergroundwater extraction—rather than controlling waterpollution. In some cases, local governments haveeven diverted polluted water to less-developeddownstream areas to avoid investing in waste-water treatment.

Alternative sources may be effective in provid-ing safe drinking water in the short run, but arenot, in many cases, the appropriate final and sus-tainable solution. Furthermore, this short-runapproach may involve more risks, such as (1) dis-turbing water resource allocations and causingfurther water shortages, which may result in addi-tional environmental impacts because of addedengineering projects; (2) ignoring the urgencyand damage caused by water pollution, which willdelay and reduce efforts in pollution control, and(3) shifting the burden to other regions and futuregenerations, thus causing transboundary or trans-generational externalities. From a long-term per-spective, pollution control—instead of watertransfer and underground water extraction—isthe most important and effective way to addressthe problem of providing safe drinking water.

Routine Pollution Prevention VersusAfter-Incident Treatment

The well-known Songhua River toxic spill in2005 and the algae outbreak in Tai Lake nearWuxi City highlighted the absence of an effectiveprevention and response system for pollution inci-dents. A series of actions were subsequently taken,including the 2006 National Plan for Environ-mental Emergency Response and the subsequent2007 National Emergency Response Law. How-ever, the pollution emergency plans and lawsmainly focus on response rather than preven-tion. This approach is insufficient: the primaryreason for the increase in water pollution acci-dents is not the lack of emergency response plans,but the government’s ineffectiveness in the super-vision and control of pollution sources. A com-prehensive risk assessment and managementprogram for pollution sources should thereforebe introduced at all levels of government to assistin emergency prevention. Further discussion onwater pollution emergency prevention is pre-sented in the next chapter.

Effectiveness of Legal Instruments:Pollution Compensation Versus Fines

National environmental laws contain provisionsregarding lawsuits, cleanup, economic compen-sation, and fines for pollution damage. But for along time now, the systems have failed to performa deterrent function for water pollution since themaximum fines have been set too low—it may becheaper to pollute and pay the fine than to pre-vent pollution. According to the Implementa-tion Regulation of WPPCL, the fine for pollutioncausing massive damage should be calculated as30 percent of the direct costs, and the amount ofthe fine should be no more than 1 million yuan.For example, in 2004 the Tuojiang River waspolluted by the Chuanjiang Corporation, whichfinally paid 1 million yuan (about $122,000) inpenalties and 11 million yuan (about $1.34million) in compensation (SEPA 2006b). In



contrast, in developed countries the compensa-tion and penalty can be very high (see Box 4.1in Chapter 4 for the experience and some casesin the United States). To some extent, the lowand capped fines encourage polluters to ignorepollution control because the financial conse-quences are so limited. In the newly amendedWPPCL (2008), the punishment against non-compliance is strengthened, but still limited.

Another problem under the existing systemis that lawsuits against water polluters can onlybe aimed at compensation for private damages,whereas most water pollution damages the gen-eral public. Obviously, this type of legal com-pensation hardly provides the right level ofincentive to control polluting activities, becausethe public goods part of environmental damage—such as to fragile ecosystems—is not subject tolegal liability claims.

Polluter-Pays Principle VersusRegional and National Responsibility

Two basic principles enshrined in Chinese lawregarding the responsibility of water pollutioncontrol are (1) polluters are responsible for pol-lution control, and (2) local governments areresponsible for environmental quality. Theseprinciples should be applied flexibly, in recogni-tion of the large differences in the nature andseverity of water pollution, as well as in the levelof economic development in different areas ofthe country. In particular, poverty in upstreamareas may result in polluting activities damagingricher downstream areas, but neither pollutersnor local governments may have the ability totake remedial measures. In addition, some pol-lution problems are caused by past developmentpolicies that are beyond the control of the localcommunity. In such situations, complete relianceon local governments and the market cannotresult in satisfactory pollution control, for rea-sons of both economic efficiency and fairness.Therefore, the central government should focuson transboundary water issues and play an impor-

tant financial role in water pollution control bytaking responsibility for some of the problemsfor which it has been historically responsible andproviding financial support to poorer areas forthis purpose.

RECOMMENDATIONS

Water pollution control is critical to the qualityand effectiveness of other water-related effortsand investments, such as water transfers, watersaving and water extraction, and the maintenanceof a safe supply of drinking water and protectionof human health and ecosystems. However,because of its relatively short history, the inter-sectoral nature of the issue, and the fragmen-tation of responsibilities for addressing it, thecontrol of pollution has the weakest institutionalsystem among those in the water sector.

Strengthening compliance and law enforce-ment must be the overarching priority of the gov-ernment’s water pollution control efforts. The keyto controlling and solving serious water pollutionin China is the strengthening of law enforcementto improve compliance by industries and otherpolluters. The government has to use all avail-able means—legal, institutional, and policy—and, through them, mobilize the public andmotivate the private sector to ensure full com-pliance with all pollution control requirements.A few specific recommendations are providedbelow:

• Improve the effectiveness of water pollutioncontrol legislation. The WPPCL should specifyimplementable objectives focusing on controlof pollution emissions and ambient waterquality rather than broad economic and socialdevelopment goals and should clearly definethe responsibility of the central government.While the WPPCL should definitively requirelocal governments to be responsible for pro-tection of the water environment at the locallevel, the involvement and supervision of thecentral government and superior governments



should also be clearly stated in the law. Gen-erally, the central government possesses watermanagement rights and financing responsibil-ity. Clearer financial arrangements should bemade to match duties of pollution controlwith authority over financial resources, espe-cially between the central and local govern-ments. In addition to supervision of provincialgovernments, the central government needsto assume more financing and supervisoryresponsibility for transboundary water pollu-tion issues.

• Improve pollution control planning. Water pol-lution control planning in river basins shouldbe improved, with the introduction of morerealistic and tangible targets. Pollution controlshould not be regarded as the final target, butthe way to achieve a clean and healthy waterenvironment. This requires a long-term, inte-grated, but progressively targeted strategy forthe protection of water quality. The immedi-ate target should be to aim at all point pollu-tion sources to comply with existing emissionstandards. For mid-term targets, a system ofemission standards based on ambient waterquality objectives should be established. Inaddition to human health, ecological conser-vation must be seriously considered and inte-grated into the standards. Water pollutioncontrol plans and water resource managementplans should be coordinated with economicand social development plans and supportedby budgetary planning.

• Control rural pollution. Attention should begiven to addressing rising water pollution insmall towns and rural areas. The regulation ofindustrial and municipal sources in smalltowns and rural areas should be carried outby local EPBs and supervised by MEP. Withregard to wastewater, sewage treatment insmall towns should be promoted through theintroduction of cost recovery policies, selec-tion of efficient technologies, and the pro-motion of treated water reuse for agriculture.This should be done in collaboration with the

ongoing national New Countryside Develop-ment program.

• Unify and strengthen the pollution monitor -ing system. Better monitoring capability isrequired for the whole range of measuresrequired for effective pollution control. Thecurrent segmented water monitoring system—involving MEP, MWR, and MHURC—hasto be reformed. In the short term the systemsshould be better coordinated, with a unifiedset of monitoring criteria and procedures forreleasing water quality information throughone channel such as MEP. In the mediumterm, the different monitoring systems can beconsolidated and managed by a third entityindependent of any single ministry.

• Strengthen the wastewater discharge permit sys-tem. To be effective, the wastewater dischargepermit system should be built on a more solidlegal basis, with a special administrative regu-lation issued by the State Council. The issuingof permits has to be technically sound andbased on environmental quality, with dailymaximum levels of discharge specified in orderto achieve ambient targets. It should target keypollutants first and aim to control the totalpollution load within the allowed pollutioncarrying capacity of the environment.

• Increase the use of market-based instruments.Pollution control efforts should take full advan-tage of market mechanisms to overcome mar-ket failures in pollution reduction. Economicincentives (such as the pollution levy and fines)have to be tightened up and fully used in orderto provide a strong incentive for polluters tocomply with emissions standards and otherenvironmental requirements. The upper lim-its of maximum fines specified in currentlaws should be increased. Furthermore, thesystem of trading of water discharge permitsshould be gradually introduced in watershedsto improve the economic efficiency of waste-water treatment.

• Enable litigation for public goods. The litigationsystem should be used to give more protection



to the public interest. The law should encour-age or require local governments on behalf ofthe public to initiate lawsuits against pollutersand demand full compensation for damage topublic goods—for example, to ecosystems—where damage to individuals is hard to identify.For significant cases, MEP itself might be theplaintiff. For any court judgment on privatecompensation for water pollution where thedamage to public goods is ignored, environ-mental authorities should state their disagree-ment and request a review of the judgment.

• Increase financing for market gap areas. There areseveral areas where market-based approachescannot be expected to effectively address pol-lution control problems. In these areas, the

central government needs to establish specialbudget accounts with which to finance waterpollution prevention and control. These areasinclude: (1) transprovincial pollution controland management, (2) important ecologicalregions and water sources, (3) dealing with acci-dents affecting international water bodies, and(4) other issues with a national dimension thatcannot be properly managed at the local level.

Endnotes1. See the Government Work Report 2008 delivered by

Chinese Premier Wen Jiabao to the National People’sCongress in March 2008.

2. Source: http://news.xinhuanet.com/fortune/2006-10/16/content_5210351.htm.



Frequent and major water pollution emergencies have become one of the notableenvironmental problems in China in recent years. If not immediately and effec-tively controlled, pollution incidents caused by accidental releases or cumulativepollution can worsen water shortages and scarcity problems, result in environ-mental and economic damage, and cause widespread concern and social unrest.

This chapter presents an analysis of the systems that are currently in placein China to present and respond to pollution emergencies, as well as to relate,some relevant international experience. It identifies areas for improvementand presents policy recommendations for institutional reform, risk manage-ment and prevention, and emergency response and mitigation.

WATER POLLUTION INCIDENTS IN CHINA

As illustrated by several incidents, including the well-known Songhua Rivertoxic chemical spill in November 2005 (Box 9.1) and the Tai Lake algae out-break in May 2007, which threatened drinking water supplies for Wuxi City,a large number of water pollution incidents have occurred in recent years inChina. In 2001–04, there were 3,988 water pollution incidents reported instatistical yearbooks, an average of about 1,000 a year. Besides the two recentwell-known incidents, there have been many other major water pollutionincidents. For example, there were over 40 major water pollution incidents inthe Yellow River from 1993 to 2004, and one incident in Inner Mongolia inJune 2004 caused serious damage to ecosystems over the 340-km river courseand shut down the Baotou City water supply for four days. In March andMay 2004, two major incidents in the Tuo River in Sichuan Province inter-rupted water supply for about a million people for 26 days (Sheng 2005).According to SEAP (now MEP), in the 5-month period following theSonghua River pollution incident, there were 76 other major environmentalincidents across China, or about one every two days (Zhou 2006). Major inci-dents include the release of toxic smelting waste into the Bei River (in the Pearl

Preventing Water Pollution Disasters

9

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River basin) in December 2005, the release ofcadmium-containing wastewater into the XiangRiver (in the Yangtze River basin), and a spill ofdiesel oil into the Yellow River in January 2006.As in the case of the Songhua River incident,they all caused not only river pollution but alsowater shortage problems.

The total cost of water pollution accidents wasreported at RMB 254 million yuan in 2004(China Statistical Yearbook 2005). These numbersare likely to be on the low side because polluters

and some local officials tend not to report envi-ronmental accidents (Sheng 2005).

CONCEPT AND FRAMEWORK FOR POLLUTION EMERGENCYPREVENTION AND RESPONSE

The basic elements of an effective preventionand response system—as already developed andimplemented in many developed countries—arerepresented in Figure 9.1.

P R E V E N T I N G W A T E R P O L L U T I O N D I S A S T E R S


The Songhua River runs through the old industrial region of northeast China with many industrieslocated along its banks, including many chemical plants, before joining the Amur River and flowinginto Russia. It is the main water source for many cities, including Harbin, the capital of HeilongjiangProvince.

On November 13, 2005, an explosion took place at the Jilin Chemical Industrial Co. plant (aPetroChina subsidiary) in Jilin city, about 380 km up river from Harbin. Five persons were killed andnearly 70 injured. More than 10,000 residents were evacuated as a precaution against further explo-sions and severe pollution from the plant.

The explosion, and the attendant firefighting efforts, led to the spilling of about 100 tons ofchemicals, mainly benzene, into the Songhua River. Ten days after the explosion, a contaminatedstretch of water 80 km long reached Harbin and took 40 hours to pass through it. As a result, theHarbin municipal government had to temporarily shut down its water supply, leaving around 3.5 million people without access to tap water. The incident caused a serious water crisis in the regionalong the river.

B O X 9 . 1 Water Pollution Incident in the Songhua River

Source: UNEP; www.uneptie.org, January 2006.

F I G U R E 9 . 1 Common Elements of an Emergency Response System

Prevention andPlanning

PreparednessCoordinatedResponse

Polluter Pays

Public Information System

Chemical Information Management System

• Prevention and planning. With a focus on riskassessment, prevention, and planning, emer-gency response plans are compiled and reviewedat the plant site, and local, regional, andnational levels. These plans clarify the roles,responsibilities, and communication channelsamong groups.

• Preparedness. An important aspect of effec-tive response is the capacity of responders.Specialized training, the provision of equip-ment and regular drills to test plans, and inter-organizational communication are essentialelements of “being prepared.”

• Coordinated response. Clear chains of commandand interagency cooperation provide a coordi-nated and tiered response allowing for a rapidassessment and response at the point of the inci-dent plus appropriate escalation to regionaland national teams.

• Polluter pays principle. In the event of an acci-dent, the polluter is responsible for clean-upand compensation costs.

• Chemical information management systems.Inventory management tracks the flow ofmanufactured and distributed chemicals, inparticular, toxic chemicals. The system alsoprovides the necessary information for a quickand effective response if an accident occurs.

• Public information systems. Public informa-tion systems provide information to the pub-lic about the hazards present under normaloperations and timely information in the eventof an emergency.

The section below illustrates how the frameworkhas been applied in some developed countries.

INTERNATIONAL EXPERIENCE

The development of emergency prevention andresponse systems has been an evolutionary processas countries have learned lessons from their ownaccidents and other countries’ experience. Anumber of well-known historical incidents haveshaped the development of emergency response

policies, regulations, and systems overseas, inparticular:

• Two well-known oil tanker disasters—the Tor-rey Canyon in the United Kingdom (1967)and Exxon Valdez in Alaska (1989)—causedcrude oil contamination off the coast of theU.K. and in Prince William Sound, Alaska.

• The Seveso disaster in Italy (1976) led to arelease of dioxin in an area near Milan.

• The Union Carbide chemical spill in India(1984) caused a release of methyl isocyanateand killed or injured more than 2,000 resi-dents of Bhopal.

• The Sandoz chemical spill (1986), drawingmany parallels with the Songhua River toxicspill, polluted the Rhine River and affected sixcountries along its course due to mistaken useof water to combat a fire in a chemical factory(Box 9.2).

Institutional Arrangements

National laws

Many developed countries have promulgatednational legislation for accidental hazard man-agement, albeit in different ways. Some have acomprehensive national law and others have acoordinated set of laws or regulations. Box 9.3lists relevant laws and regulations in the UnitedKingdom and the United States.

In addition, the international communityhas adopted a number of agreements to improvethe management of chemicals and minimize theharm they cause especially toxic and hazardouschemicals. The major agreements are the BaselConvention on the Control of Trans-boundaryMovement of Hazardous Wastes and Their Dis-posal, the Rotterdam Convention on the PriorInformed Consent Procedure for Certain Haz-ardous Chemicals and Pesticides in Inter -national Trade, and the Stockholm Conventionon Persistent Organic Pollutants (POPs). Theseagreements, which China has ratified, establish



an international framework for the managementof chemicals, particularly hazardous chemicals.

Organizational structure

Effective emergency response typically dependson the coordinated efforts of a number of func-tions to optimize prevention and planning mea-sures and to provide timely response and clean-upin the event of an accident. In the U.K., for exam-ple, the local Environment Authority and theHealth and Safety Executive are often the nomi-nated competent authorities required to provideapproval for the emergency response plans forhigh hazard sites. They ensure that all the health,safety, and environmental risks have been identi-fied, removed, or minimized and that appropri-ate plans are in place to minimize and mitigatethe impact from any potential accidental release.In the event of an accident, they would be onhand to provide technical advice to the policeand fire brigade as well as to monitor the impactsof the release. They would also play an important

role in the accident investigation and prosecutionof polluters. There also is a graduated escalationsystem that ensures that response is coordinatedat the regional and national levels depending onthe size and impact of the accident. Again in theU.K., cabinet-level involvement can be activatedfor incidents with a national impact.

For transboundary rivers, a number of inter-national river basin commissions have been estab-lished in Europe, such as for the Rhine, Danube,Kura, and Neman. Typically, several countries areinvolved in the commissions, and arrangementsare in place to prevent pollution of the rivers,and early warning and alarm systems inform allcountries in the event of an incident.

Prevention and Planning

In Europe, industrial sites are categorized accord-ing to their potential hazards. Before receiving alicense to operate, high-hazard sites are requiredto produce a major accident prevention policy



On November 1, 1986, an explosion occurred in the Sandoz Chemical factory in Basel, Switzerland, onthe banks of the Rhine River. The fire took five hours to extinguish, pouring 10,000 to 15,000 m3 ofpolluted water into the river. That water contained organic mercury compounds, insecticides, fungi-cides, herbicides, and other agricultural products, which made their way down 900 km of the Rhine,through six sovereign states and into the Baltic Sea. No one was killed, but the spill killed hundredsof thousands of fish and waterfowl. Ten thousand people marched in the streets of Basel. The eco-nomic loss to properties downstream was estimated to be 100 million Swiss francs. Lessons learnedfrom this incident have subsequently contributed to amendments to the European Union’s so-calledSeveso II Directive, the development of the Basel Convention, and the Convention on the Protectionof the Rhine.

B O X 9 . 2 The Sandoz Chemical Spill in Switzerland and down the Rhine

In the United Kingdom, the significant national legislation is the 1999 Control of Major Accident Haz-ards Regulation (COMAH), which enacts the European Union directives (or Seveso Directives) on theMajor Accident Hazards of Certain Industrial Activities (82/501/EEC) and the 2004 Civil Contingencies Act.

In the United States, the major regulations include the Clean Water Act (1972), the Oil Pollution Act(1990), the Emergency Planning and Community Right-to-Know Act (1986), the National Oil and Haz-ardous Substances Contingency Plan (1968, amended 1994), the Clean Air Act (1970; amended 1990),and the Homeland Securities Act (2002).

B O X 9 . 3 Examples of National Legislative Systems

and a safety management system. These identifythe potential accident scenarios that could impacton the environment and/or human safety and theappropriate response. Emergency response plansare compiled and reviewed regularly at plant,local, regional, and national levels. These plansclarify the roles, responsibilities, and communi-cation channels among groups. In this way plantoperators are forced to identify and implementpreventive measures as well as response and mit-igation measures.

Preparedness and Coordinated Response

The local response is coordinated and tiered,allow ing for rapid assessment and response at thepoint of the incident plus escalation to regionaland national teams if required. There is coordina-tion between those who physically respond to theincident and those who provide technical adviceand public information. Unified command andresponse are evident in the bronze, silver, and goldcommand structure of the U.K. and in the unifiedcommand of the incident command system in theU.S. Specific emergency response providers are

trained in the treatment of chemical hazards. Inthe U.K., this takes the form of specially trainedHAZMAT (hazard ous materials) officers in localfire stations. The United States has also establisheda well-organized emergency response system. Firstresponders are trained and certified in hazardouswaste operations and emergency response and gothrough regular emergency response drills. Chem-ical plants are required to prepare and implementa risk management plan (RMP), which providesfirst responders with information in the event ofan accident. The response to the Buncefield inci-dent in the United Kingdom (Box 9.4) demon-strates how the existence of an emergency responseplan and training and coordination of first respon-ders can lead to a rapid and successful response.

Implementation of the Polluter-Pays Principle

There are a number of examples in the developedworld of financial mechanisms that are employedto recoup the costs of environmental protectionbeyond the factory fence and legislative enforce-ment. In the U.S., the Superfund Act (formallyknown as the Comprehensive Environmental



In the early hours of December 11, 2005, a number of explosions occurred at the Buncefield Oil Stor-age Depot, Hemel Hempstead, Hertfordshire, U.K. At least one of the initial explosions was massive(measuring 2.4 on the Richter scale) and there was a large fire, which engulfed most of the site. Over40 people were injured; fortunately, there were no fatalities. Significant damage occurred to bothcommercial and residential properties in the vicinity, and a large area around the site was evacuated.

The fire at the Buncefield oil depot represented a major challenge to the emergency responsesystems in the U.K. It required a multi-agency, coordinated response to the fire and its aftermath. Inthis incident, responders were onsite within 10 minutes of the explosion. They knew the site and thechemical risks, had practiced the response, and had immediate access to 24/7 technical support byphone. The scene was immediately declared a “major incident” and activated the site emergencyresponse plan, which had already been submitted and approved by the competent authorities.

Key to the response was good coordination between a number of agencies, including the firebrigade, police, ambulance service, the Environment Agency, the Health and Safety Executive, andthe National Chemical Emergency Centre. Together these agencies developed a fire fighting strat-egy that minimized releases to the local water courses and kept the local public informed of the risksand the measures they needed to take.

B O X 9 . 4 The Buncefield Incident, U.K.

Response, Compensation and Liability Act) intro-duced a tax on the chemical and petroleum indus-tries and liability for spills. The Oil Spill LiabilityTrust Fund provides for clean-up before res -ponsible parties (the polluters) are identified orwhen no responsible party can be identified.These mechanisms are just part of the fundingmechanisms that are based on the polluter-paysprinciple, which not only aims to recoup costsassociated with pollution but to prevent pollu-tion through financial incentives that reward theminimization of pollution. Typically, individualcompanies will have insurance to cover environ-ment, health, safety, and fire incidents, with pre-miums that reflect the hazards and levels of riskmanagement on site. Once an incident happens,the polluter’s fine can be high. For instance, forthe Exxon Valdez oil spill incident in Alaska,Exxon was ordered to pay a fine of $5 billion inaddition to spending $2.1 billion on cleanupand $1 billion on compensation.

Chemical Information Management System

The operators of chemical registries play a vitalrole in the response system, providing technicalinformation by phone or in person to those at thescene of a chemical incident. In the U.K., this isthe role of the National Chemical EmergencyCentre (NCEC), which provides a 24-hour tele-phone hotline and is staffed by appropriatelytrained and qualified staff. Contact numbers forNCEC are prominently displayed on chemicallabels and at facilities.

Across Europe, standardized Material SafetyData Sheets (MSDSs) are commonly producedfor every dangerous chemical. A TRransportEMergency (TREM) card, which containsselected information from the MSDS about thenature of the hazard and risks presented by thechemicals, is required to accompany dangerouschemicals on the move. It details the personalprotection, spillage, fire fighting, first aid, and

immediate actions to be taken by the driver ofthe vehicle and the first responders at the sceneof an accident.

Public Information Systems

In the developed world, provisions for inform-ing the public both at the time of the incidentand in preparation for any potential incident areincluded in the emergency response plan. Theemergency response plans for high-hazard sitesand local authorities are often shared with thepublic through a series of public hearings. In addi-tion, a variety of systems, often using the Inter-net, are used to make monitoring informationavailable to the public. For example, in the U.S.,the “Scorecard” (available at www.scorecard.org)allows a member of the public to search for pol-lution issues by zip code. These public informa-tion systems provide a mechanism for localcommunity engagement and an incentive forbusinesses and local authorities to ensure thatpollution is effectively managed.

ENVIRONMENTAL EMERGENCYPREVENTION AND RESPONSE IN CHINA

After the Songhua River toxic spill, the Chinesegovernment took immediate steps to strengthennational environmental emergency preventionand response. The Decision on Implementing theScientific Concept of Development and Step-ping up Environmental Protection released bythe State Council in December 2005 highlightsdrinking water safety, pollution control in keyriver basins, and water pollution accident pre-vention and response as the outstanding prioritytasks to be solved. The National Plan for Envi-ronmental Emergency Response was adoptedin January 2006. In early 2006, 11 enterpriseslocated near rivers were officially identified asposing major environmental risks and publiclywarned by SEPA, and 127 chemical and petro-



chemical projects with a total investment value ofRMB 450 billion yuan underwent urgent envi-ronmental risk inspection (SEPA News 2006).

Another major step was the promulgationof China’s Emergency Response Law by theNational People’s Congress in August 2007. Anemergency incident as defined in this law is abroad concept that refers to “natural disaster,accidental disaster, public health incident orsocial safety incident, which takes place by acci-dent, has caused or might cause serious socialdamage and needs the adoption of emergencyresponse measures.” Water pollution emergencyresponse falls within the purview of this law.The law provides a legal basis for emergencyresponse by authorizing governments at differ-ent levels to prepare, revise, and implementemergency response plans.

Despite some successful cases of environmentalemergency response and the above governmentactions in China, the high frequency of seriouspollution incidents and their associated costs pointto the need for continued reform and strength-ening of existing institutions for environmentalpollution emergency prevention and response inChina. The analysis below further shows that theproblem is attributable to many factors rangingfrom weak institutional arrangements, lack ofincentives, and poor chemical management sys-tems, to inadequate onsite coordination, mon-itoring, and reporting.

Institutional Arrangements

National laws

Even with the new Emergency Response Law inplace, the environmental emergency preventionprovisions in national legislation remain inade-quate. Some sectoral laws also contain pollutionemergency response requirements. For example,article 28 of the amended Water Pollution Pre-vention and Control Law contains a simpleclause on the responsibilities of polluters withregard to emergency response, information dis-

closure, and reporting. In the Marine Environ-mental Protection Law and the Radiation Pollu-tion Prevention and Control Law, there aresome requirements for emergency preventionplans and emergency response plans, as well aslegal liability for pollution incidents. But theemergency response clauses in sectoral laws arenot well integrated or coordinated. They arenormally short on details that are critical forimplementation. Moreover, compliance withand enforcement of these environmental lawsand clauses have been very weak.

Organizational structure

Pollution incidents involve governments, compa-nies, and the public, and they often cross admin-istrative boundaries. In China, the groups relatedto emergency prevention and response includethe Public Security Bureau (PSB), the StateAdministration for Work Safety (SAWS), MWR,MEP, the Administration of Quality Super -vision, Inspection and Quarantine (AQSIQ),local police, fire brigades, local departments ofenvironmental protection, transportation, water,construction, and planning, as well as river basinmanagement commissions (RBMCs). The un -clear definition of responsibilities and insuffi-cient communication between agencies oftenresult in a failure to disseminate information andthe subsequent inability to respond in a timelyand well-coordinated fashion to environmentalemergencies.

Before the adoption of the National Plan forEnvironmental Emergency Response, no dedi-cated national body existed to coordinate and leadprevention and response to environmental pollu-tion emergencies. The National Plan requires theestablishment of an inter-ministry coordinatinggroup under the State Council responsible forcoordination of environmental emergencies andinformation sharing. It also requires relevant lineministries and local governments to handle envi-ronmental incidents in their respective sectors orareas. The ability of the coordinating group to



quickly and effectively coordinate a major pollu-tion accident is still to be tested.

Incentives

Early in 1987, China promulgated the Prelimi-nary Regulation on Reporting Incidents of Envi-ronmental Pollution and Damages. But accidentalpollution incidents did not receive sufficient atten-tion from local governments until the SonghuaRiver toxic spill. One reason for the low aware-ness is because the current overall performanceevaluation system for local governments andofficials focuses on GDP growth and seldomincludes environmental indicators. Without theright incentives in place, maintaining an ongoingeffort by local governments to strengthen envi-ronmental emergency prevention and response isunlikely to be possible.

Prevention and Planning

In China, new construction projects of pollutingindustries such as chemical plants are required toundertake an environmental impact assessment(EIA) and sign safety responsibility agreementsin order to obtain construction and operationpermits. Projects where hazards are present arerequired to undertake a safety assessment andinclude environmental risk analysis in theirEIAs. EIAs are approved by various levels of theEPB or MEP depending on the size of the plant.However, many EIA reports are not reviewedand checked very strictly, and required mea-sures for risk prevention are not always imple-mented in practice. Older plants, built beforeEIAs became mandatory, may have never formallyassessed their potential environmental impacts/risks or the steps to minimize those impacts/risks. In addition, the reviews of environmen-tal risk assessment and company managementmeasures are subject to review every three yearsin order to renew operating licenses. In practice,the reviews are in many cases not strict enoughto ensure that the measures remain adequate andup to date.

Due to poor awareness of environmental prob-lems in the past, many old, heavily polluting, ortoxically dangerous industries have been locatedin populous areas or along rivers. A SEPA surveyshows that among 7,555 chemical or petroleumprojects in China, 81 percent are located in envi-ronmentally sensitive areas such as water networksor dense population areas (Xinhua News Agency2006). Environmental guidance in zoning andsite selection in spatial planning is weak, if itexists at all. Strategic environmental assessmentof spatial plans, required by the China EIA lawsince 2003, is not well implemented.

Preparedness and Response

The Songhua River incident also indicated thatthe first responders had not been provided withadequate training or access to support fromexperts in chemical management. Those whowere first on the scene did not know how torespond differently from a typical firefightingincident. As a result, vast quantities of waterwere used to dilute the benzene and release itinto the river, which only served to spread thepollutant rather than contain it.

Implementation of Polluter-Pays Principle

Current systems provide little incentive for bothlocal officials and potential polluters to pay seri-ous attention to pollution emergency prevention.Although China has accepted the polluter-paysprinciple, as already discussed in Chapters 3 (seeBox 3.5) and 8, the levels of the pollution levyand fines for pollution accidents are low. For thewater pollution incident in the Tuo River in2004, which caused a shutdown of water supplysystems for about 1 million local residents for26 days, the company that caused the pollutionpaid only 11 million yuan for damage compen-sation and only 1 million yuan in fines. The lowlevels of the pollution levy and fines for pollu-tion accidents give little incentive for industries



to abate pollution, reduce pollution discharges,or prevent environmental accidents.

In addition, although environmental lawclearly states that the polluter is responsible forthe costs of environmental accidents, the currentownership and enforcement systems often failto establish clear liability and responsibility forcleanup and compensation. China also lacks anadequate insurance system to cover the risks andcosts of environmental disasters.

Chemical information management systems

China is currently developing two chemicalinventory systems. One is for new and imported/exported chemicals under the administration ofMEP, and another is for dangerous chemicalsmanaged by the National Chemical RegistrationCenter under the State Administration for WorkSafety (SAWS). Both registries are relatively lightlypopulated compared to more mature systemsfound overseas. Moreover, the two systems areseparated from each other. How to make themconsistent through coordination is still an issue.China is also introducing the MSDS for produc-tion, transportation, storage, and use of chemi-cals. But these are still at an early stage and notfully functioning.

Monitoring and public information system

Water quality monitoring plays an importantrole in detecting incidents and understandingthe impact on human health and the environ-ment. China has much of the equipment andexpertise to collect data on water quality butlacks the systems and funding to analyze and dis-tribute the information effectively and to man-age the river basin accordingly. As mentionedin the last chapter, several bodies (such as themonitoring centers/stations under MEP, MWR,and local EPBs) undertake monitoring, butthere is little coordination of results nor muchin the way of a predetermined and coordinatedresponse in the event that pollution levels riseas a result of an accidental release. The Songhua

River incident highlights some serious prob-lems with environmental information collec-tion, reporting, and disclosure in China. Thesituation may improve under the guidelines ofthe newly adopted National Plan for Environ-mental Emergency Response.

RECOMMENDATIONS

The Songhua River incident and a series of subse-quent water pollution events have revealed theweakness of the environmental emergency pre-vention and response system in China. They alsopresent an opportunity for the country to establishand improve the system, thereby strengtheningpollution control and environmental protection.Based on the analysis of the institutional andpolicy weaknesses in China and the experiencesof developed countries, China should take a com-prehensive approach that adopts risk assessment,risk management, prevention measures, inter -agency coordination, compensation and fines,and post-evaluation. Water pollution preven-tion, control, and response should be fully inte-grated into legal and economic instruments,which have been discussed above. Other specificrecommendations are provided as follows.

• Shift from mitigation to prevention and plan-ning. Environmental protection and work safetyagencies should be the competent authoritiesto approve the adequacy of environment andsafety risk assessment, applying a thoroughrisk management approach that focuses onboth prevention and mitigation of the impactsof chemical incidents. Operating licenses, riskassessments, and emergency plans of pollutingenterprises should be reviewed on a regularbasis or when a major change is proposed.Industrial sites should be categorized accord-ing to the hazards present. All high-hazardplants regardless of age should be subject torisk assessment and be required to prepare anemergency response plan.

• Chemical management information system.The central government should establish and



maintain comprehensive inventories of allchemicals and pollution sources containinginformation consistent with international stan-dards. The function and effectiveness of thetwo existing systems developed by SAWS andMEP separately should be reviewed. Invento-ries should be consistent, comprehensive, andeasily used in public emergency prevention andresponse. A comprehensive labeling system forchemicals should be established and applied toall parts of the production, storage, and trans-portation process.

• Enhance preparedness. First responders shouldbe well trained for handling chemical incidentsand equipped with the mandate and resourcesto contain pollution releases. The NationalChemical Registration Center and its regionaloffices should establish a unit, independentfrom enforcement divisions, to provide 24-hourtechnical support to the emergency serviceson the properties and appropriate responses tospecific chemical releases from a safety andenvironmental perspective.

• Establish an environmental disaster fund throughthe implementation of polluter-pays principle.An environmental disaster fund with sufficientrevenue to support such activities as informa-tion management, training, and clean-up for

environmental incidents should be established.Funds could be raised through an increase inthe pollution levy on toxic chemicals to reflecttheir risks and economic costs and/or the intro-duction of environmental taxes as part of aproduct tax on toxic chemicals based on theirpotential environmental risks. In addition,increased fines for pollution accidents to coverthe cost of clean-up and compensation shouldbe considered as another source for the fund.

• Monitoring and public information. In the eventof an incident, local environment and safetyauthorities should establish appropriate addi-tional monitoring to assess the impact on thehealth and safety of the local communities andthe environment. Following an incident, thelocal EPB and MEP should be responsible forsetting standards and monitoring the effective-ness of the clean-up effort. Accident investiga-tion should be mandated, aiming to identify thepolluter and cause of the incident and how theincident can be prevented in the future. Inves-tigation findings should be reported to thecentral authorities, and a mechanism estab-lished to share lessons learned and introducenew legally binding practices and proceduresif necessary. The public has the right to beinformed of the final investigation results.



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SUMMARY

China has been plagued with water shortages, droughts, and floods since thebeginning of its civilization, and per capita availability of water in the countryis now only one-fourth of the world average. In recent decades, along withthe nation’s rapid industrialization and economic growth, water pollution hasemerged as another serious issue, further exacerbating the problem of waterscarcity. Northern China is already a water-scarce region, and China as awhole will soon join the group of water-stressed countries.

Many studies have shown that the current trend of water consumption isunsustainable and will constrain the growth of the nation. Despite seriouswater scarcity, China’s water utilization efficiency is poor. China’s water pro-ductivity of $3.60/m3 is low in comparison with the average of middle-income($4.80/m3) and high-income ($35.80/m3) countries. This gap is largely dueto differences in the sectoral structure and efficiency of water consumption.This implies that there is much room for China to address its water scarcityproblem by effectively managing its water resources and improving efficiencyin water use.

This report concludes that the big challenge in water resource manage-ment in China is to establish an effective institutional and policy framework,which requires a broad and deep reform of the current system. In line withChina’s national strategy of developing a market economy, the nation shouldstrengthen its water management by clearly defining the role of governmentin addressing social, environmental, and economic objectives, and relyingmuch more heavily on market-based instruments in this process. Institutionaland policy reforms in selected thematic areas—legal framework, organizationalstructure, information disclosure, public participation, water rights, waterpricing, eco-compensation in river basins, water pollution control, and pollutionemergency prevention—have been discussed in this report. The key messagesare as follows:

Summary, Action Plan, and Issuesfor the Future

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Legal Framework

The Chinese government should make strenu-ous efforts to improve water governance, rangingfrom legal and organizational reform to infor-mation disclosure and public participation. Onthe legal side, the priority is to improve lawenforcement. The existing provisions should beenhanced to make laws or regulations opera-tional and enforceable, with detailed implemen-tation procedures stipulated in water-related lawsand regulations. Supervision and inspection bynational and local congresses and administrativebranches should be strengthened, with adequatebudget and personnel provided. Laws and regu-lations should also empower the public to helpmonitor and track down pollution violators andpromote public-private partnerships in waterresource management.

Organization

The traditional approach to water management,which is fragmented along sectoral and regionallines, has to be changed. China should make ashift from the current paradigm to a new systemof integrated water management. This requiresthe restructuring of governmental organiza-tions to improve integration, consultation, andcoordination. One option is to establish a StateWater Resources Commission as a coordinat-ing and steering organization on water-relatedaffairs across the country at the highest level ofgovernment. This commission will serve as ahigh-level water policy-making body. Anotheroption would be to merge major water-relatedduties currently put under different governmentagencies (namely MWR, MEP, MOA, MHURC,and MLR) and establish a new super ministry toimplement unified management of water quan-tity and quality, surface water and groundwater,water resource conservation and use, and waterenvironmental protection. River basin manage-ment commissions need to be restructured toensure a broader representation and ownership.

Information and Participation

The right of citizens to have access to environmen-tal information, to participate in water resourcemanagement, and to challenge decisions by gov-ernment should be fully granted, and indeedencouraged. It is important to make informationdisclosure a compulsory obligation of governmen-tal organizations, water companies, enterprisesdischarging pollutants, and other major stakehold-ers. Existing procedures and policies should beamended to make possible the wider involvementof NGOs in water pollution and resource manage-ment. In addition, the raising of public awarenessand education activities should be widely con-ducted for all civil groups, including children, inorder to build a broad basis for ongoing publicparticipation in water resource management.

Water Rights

Water rights in China have not been clearlydefined and fully developed, resulting in watershortages and inefficient use of water at the sametime. Despite some progress in recent pilot pro-jects, China needs to improve its water allocationand rights administration and develop watermarkets. Water allocation plans and water rightsshould clearly specify the water available forabstraction, the amounts of water consumed,and the amounts that must be returned to thelocal water system. The administration of waterrights needs to be strengthened, with the con-ditions, procedures, rights, and obligations forwater withdrawal and return flows clearly speci-fied in order to reduce existing uncertainties andpromote public participation. The ET approachshould be promoted, especially in water-stressedareas. Water trading can be an effective mecha-nism for reallocation of water from low-value tohigh-value uses and needs to be developed. Thegovernment also needs to develop a mechanismto assess the benefits and costs of water rightstransfers, especially their impact on third parties,and in general to protect the public interest.

S U M M A R Y , A C T I O N P L A N , A N D I S S U E S F O R T H E F U T U R E


Water Pricing

China’s water resource management should shiftfrom supply to demand management. Water pric-ing is an important means of managing thedemand for water. Water prices in China are gen-erally too low to cover full financial costs, let aloneeconomic and environmental costs, although someprogress has been made in recent years in raisingwater tariffs, sewage fees, and water resource fees.Given the magnitude of the water scarcity prob-lem, China should aggressively use pricing policyto internalize the environmental and depletioncosts of water exploitation and consumption,based on the marginal opportunity cost (MOC)approach. Water tariffs, including wastewatertreatment fees, must increase constantly in theyears to come. To make pricing reform successful,its social impact, especially the income impact onthe poor, has to be addressed. A number of incomeor pricing support measures can be used to protectthe poor and ensure a win-win result in watertariff reforms. Already adopted in Chinese regula-tions, the increasing block tariff approach, espe-cially a two-tier tariff structure, is recommended.To achieve social, environmental, and financialtargets, the first block has to be adequate to ensurethe basic living needs of the poor, with the secondblock gradually increasing to full MOC.

Ecological Compensation in River Basins

Ecological compensation mechanisms in riverbasins can play an important role in protectingwater sources, especially in the upper reaches ofthe rivers. Although such mechanisms have beenwidely accepted and applied at both national andlocal levels in China, they are primarily supply-driven through government transfers from publicfunds and lack a direct causal link between eco -system service providers and ecosystem servicebeneficiaries. There are some doubts as to thelong-term sustainability of the existing programs,and China should vigorously adopt a more market-

oriented approach. The payment for ecosystemservices (PES) approach is more market-orientedand self-financing by directly linking ecosystemservice providers and beneficiaries. It has muchappeal in China; pilot schemes should be under-taken and the approach promoted, beginning withsome smaller watersheds.

Water Pollution Control

Serious water pollution must be controlled.The key to water pollution control is primarilythe strengthening of law enforcement to improvecompliance by industries and other dischargersof waste into water bodies. Given the failure ofthe free market system to internalize pollutioncosts, the government must take responsibility forcontrolling pollution to protect the public interest.Economic measures such as the pollution levy andfines have to be improved in order to provide astrong incentive for polluters to comply with emis-sion standards. Sewage fees need to be increased toprovide sufficient funding for municipal waste-water treatment. For transboundary water pollu-tion, the central government needs to assumemore financial and supervisory responsibility.

Pollution Emergency Prevention and Response

Pollution emergencies and their threat to watersources need first to be addressed by improvingresponse mechanisms when incidents occur. Firstresponders should be well trained for handlingchemical incidents and equipped with the man-date and resources to contain pollution releases.Twenty-four-hour technical support to the emer -gency services should be provided. Requirementsfor reporting, monitoring, and public informa-tion disclosure of pollution incidents should bewell institutionalized and implemented. Besides,prevention is always better than cure. This requiresa shift of attention from response and mitigationto prevention and planning. Risk assessments byindustry and by site have to be conducted and



regularly updated. To this end, chemical man-agement processes, including inventory, label-ing, and monitoring, have to be strengthened.An environmental disaster fund with sufficientrevenue to support such activities as informationmanagement, training, awareness-raising, andclean-up for environmental incidents should beestablished. Funds could be raised through anincrease in the pollution levy and/or the intro-duction of environmental taxes on toxic chemi-cals. In addition, increased fines for pollutionaccidents to cover the cost of clean-up and com-pensation should be considered as anothersource for the fund.

ACTION PLAN

Many policy recommendations have been offeredin the selected thematic areas, ranging fromorganizational setup to participation and fromwater rights to pricing. An important issue ishow to effectively implement them. This requiresgood coordination and scheduling among variousrecommended actions. The following summa-rizes the recommendations in an action plan tablewith suggestions on implementing agencies andimplementation timeline, where S represents ashort run up to 3 years, M for a medium run of4–9 years, and L for a long run of 10–20 years.

ISSUES FOR THE FUTURE

While this report has addressed a number of crit-ically important issues relating to water resourcemanagement in China, it does not, as indicatedin Chapter 1, claim to cover all aspects of thesubject. Moreover, the various studies have high-lighted a number of areas where further work isrequired; in some cases, the implementation ofthose recommendations will depend on furtherstudies. Some of these important areas—relatingto agricultural water, climate change, and strategicassessment and economic analysis for river basinplans and programs—are referred to below.

Water Efficiency, Food Security, and Rural Development

Our case studies have revealed a big variationin the economic value of water by sector andby region, low economic efficiency of agricul-tural water use, and poor cost-effectiveness ofunderground water withdrawal in North China.Although the general direction of improvingwater-use efficiency by reducing demand for waterby the agricultural sector is supported, the issueis complicated by and associated with variousissues involving the rights and well-being of therural population, national food security, agri-cultural sector protection, and poverty allevia-tion. The central issue is how to reduce ruralpoverty and secure the nation’s food supply whileat the same time improving the efficiency of wateruse. Any further policy recommendations haveto address these concerns and will require fur-ther study.

Climate Change Adaptation

Global warming caused by human activities canbe one of the biggest threats to the natural environ-ment and human well-being. Recent reports ofthe Intergovernmental Panel on Climate Change(IPCC) deem human causation of climate changeto be very likely. The scarcity and vulnerabilityof China’s water system can be negatively affectedby climate change, and remedial and adapta-tion measures need to be taken to amelioratethese effects. How to fully take into account cli-mate change impacts and mainstream adapta-tion measures in the institutional and policyreform of water resource management in Chinais an issue for further investigation.

Ecological and Economic Studies of River Basins

Effective applications of water managementmeasures—such as water pricing, water alloca-tion, and water rights administration, ecological





Short term

Medium term

Medium term

Short term

Short/mediumterm

Medium term

Short term

Short Term

Short term

Medium term

Long term

Short/mediumterm

Long term

Implementation Recommended Actions Responsible Agencies Timeline

State Council

State Council

State Council, national government agencies, andriver basin commissions

NPC

NPC and national governmentagencies

NPC and local congresses

State Council and relevantnational government agencies

MEP, MWR, local government,enterprises

National government agencies

State Council and relevantnational government agencies

Governments, civil society, andenterprises

MWR and local water authorities

MWR and local water authorities

Organization• Establish a State Water Resources Commission

as a coordinating and steering organizationfor water-related affairs.

• Merge water-related duties currently putunder different government agencies into anew super ministry to implement unified management of water quantity and quality.

• Restructure river basin commissions to ensurea broader representation and ownership.

Legal• Develop an action plan to amend existing

laws and regulations and fill gaps in presentlegal provisions.

• Make existing laws or regulations operationaland enforceable, with detailed implementationprocedures.

• Strengthen the supervision and inspection ofnational and local congresses and administra-tive branches to improve law enforcementand compliance.

Information Disclosure• Make information disclosure a compulsory

obligation of governmental organizations,water companies, enterprises, and othermajor stakeholders.

• Make water quality information and pollutionsource databases accessible to the public andcommunities.

Public participation• Ease the existing procedure and policy for

NGO registration and management to promotea broader involvement of NGOs.

• Encourage the public to participate in watermanagement, with rights of access to infor-mation, to participate in decision making, andto challenge decisions by the government.

• Raise public awareness of water issues throughpublic education programs and campaigns.

Water rights and markets• Improve water withdrawal permits and link

them to the initial allocation of water estab-lished in the water resource plan.

• Strengthen water rights administration, with the conditions, procedures, rights andobligations for water withdrawal and returnflows clearly specified, measured, controlled,and enforced.

(continued)

T A B L E 1 0 . 1 Recommended Action Plan


• Apply the ET approach to water allocationand rights in water-stressed areas.

• Develop and expand water trading markets in water-scarce areas for reallocation of waterfrom low-value to high-value uses.

Water pricing• Implement the increasing block tariff approach,

especially a two-tier tariff structure, for residen-tial consumers where metering is available.

• Apply the MOC approach in regional andnational water management and economicplanning systems.

• Follow the MOC approach so that water tariffsreflect the increasing costs of water and itsdisposal.

• Convert the water resource fee into a tax, withthe revenue going to the central governmentbudget for water resource planning based onnational priorities.

Eco-compensation instruments• Adopt more market-oriented approaches such

as PES for ecological compensation, with pilotprojects in small watersheds.

• Build political will, governance mechanisms,and institutional arrangements for PES andrecognize and reward those who try innovativeeco-compensation approaches.

Water pollution control• Consolidate current water quality monitoring

systems and make them independent of anysingle ministry.

• Identify, manage, and control the sources ofpollution, including those in small towns andrural areas.

• Strengthen the wastewater discharge permitsystem and promote the trading of permits.

• Review and enhance economic incentives(such as the pollution levy and fines) for pollution control.

• Improve the litigation system to protect thepublic interest.

• Establish a special budget account for financingwater pollution prevention and control.

Water pollution incident prevention• Provide 24-hour technical support to the

emergency services.• Enhance safety risk assessment and approval

systems.• Establish and maintain comprehensive inven-

tories of all chemicals and pollution sources.• Introduce a comprehensive labeling system

for chemicals.• Establish an environmental disaster fund.

Medium/longterm

Long term

Short/mediumterm

Medium term

Medium/longterm

Medium term

Short term

Medium term

Short/mediumterm

Medium term

Short/mediumterm

Short/mediumterm

Medium term

Medium term

Short term

Short/mediumterm

Medium term

Medium term

Medium term

Implementation Recommended Actions Responsible Agencies Timeline

MWR, local governments, andriver basin commissions

MWR and local governments ofpilot areas

Local governments

NDRC, river basin commissions,and local governments

Local governments

State Council and national government agencies (especially MOF and NDRC)

National government agenciesand local governments ofpiloting watershed

National government agenciesand local governments ofpiloting watershed

State Council and national government agencies

MEP and local EPBs

MEP and local EPBs

State Council and national government agencies (especially MEP)

NPC and local congresses

MOF, MEP, local finance bureausand EPBs

National Chemical RegistrationCenter and its regional offices

MEP and SAWS as well as theirlocal bureaus



MEP

T A B L E 1 0 . 1 Recommended Action Plan (Continued)

compensation, and water quality managementin a river basin—all depend on good analysis andunderstanding of the ecosystems and the eco-nomic value of competing water uses, such as agri-culture, energy, municipal water supply, and floodcontrol in the river basin. In many cases, theimportant analytical work has not been done, tothe detriment of efficient river basin management.Developing a sophisticated analytical system—using advanced economic, geographic, and eco-logical tools—is required for sound policy making.

Development Strategies, Policies, and Plans and Their Long-TermImpacts on Water Scarcity

The China Environmental Impact AssessmentLaw, effective in 2003, required strategic environ-mental assessments (SEAs) to be undertaken forregional and sectoral development plans. Theseinclude land use, water resource management, andwater pollution control plans for river basins.However, such SEAs have rarely been carried outdue to the lack of knowledge, expertise, and capac-

ity of planning agencies and local environmentalbureaus and research institutes. As a result, thelong-term impacts of these plans on water scarcityconditions and the natural environment are inquestion. This situation has to be changed.

CONCLUDING REMARKS

There is no doubt that China is facing a majorchallenge in managing its scarce water resourcesto sustain economic growth in the years ahead.This is a daunting task for the Chinese leadership,but past experience in China and in other coun-tries provides some lessons as to the way ahead.Of course, China is unique in many ways, andwill have to adapt techniques and policies devel-oped elsewhere to suit its own circumstances. Butthere are grounds for optimism; the Chinese, whohave demonstrated immense innovative capacityin their successful program of economic reform,can and should take another bold move in reform-ing the institutional and policy framework tomake it become a world leader in water resourcemanagement.




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Zhang, Hongjun. 2006. “International Experience withToxic Chemical Management.”

Liu, Guozhi. 2006. “An Overview of Major MultilateralEnvironmental Agreements on Hazardous ChemicalManagement.”

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AAgriculture

determinants of water productivity, 26economic value of water, 26, 37, 38tecosystem restoration projects, 99geographical distribution of arable land, 9–10payments for ecosystem services, case study, 107,

108–9significance of, in water pollution, 1–2, 13water content of products, 37, 38twater productivity, xviii, 25, 35water use goals of 11th Five Year Plan, 2, 27water withdrawals, 25See also Irrigation

Allocation of resourceannual, 68boundary setting for, 64current governance shortcomings, xxiienvironmental flow considerations, xxiii, 65–66, 80evapotranspiration approach, xxiii, xxiv, 62, 69–71,

79, 138infrastructure support, 79international experience, 64–65, 66legal and regulatory framework, 67–68measurement technology, 79monitoring, 68–69, 79permits for withdrawal, xxiii, 80rationale, 61recommendations for governance, xxiii, 80requirements for water rights-based system, 64research needs, xxxshare determination, 64, 66, 68water productivity and, xviiiSee also Markets, water; Rights-based water

management

Analytical and advisory assistance program, xvii–xviii, 2,3f

Australia, 74

BBanking, water, 74Bei River pollution incidents, 14, 127–28Beijing

groundwater tables, 17water pricing, 84, 86, 87, 90water tariff reforms, 3

Bishan, 90

CCancer, 19, 20fChemical oxygen demand, xxvi, xxvii, 12, 111Chile, 74China Water Pollution Map, 56Chongqing, 3, 84, 88–90, 92, 93Clean Water Act, 44f, 48Climate change

research needs, xxx, 140water supply and, 11

Coliform bacteria, 19Compendium of Implementation for Fully Promoting

Law-Based Administration, 46Convention on Access to Information, Public Participa-

tion in Decision-Making and Access to Justice inEnvironmental Matters, 53, 57–58

Costa Rica, 104–5

DDemand-side management, xvii

shortcomings of current governance system, 48water rights system and, 35

Index

�


Desalination technology, 27Development

China’s economic growth, 21costs of water scarcity, 21pollution management and, 112–13water problems related to, 21

Diarrhea, 19, 20fDomestic consumption

basic need estimates, 91current wastewater treatment capacity, xxviidrinking water quality, 18–19, 20furban areas, 21–23, 36wastewater discharge, xix, 12–13water pricing, xxv, 36

Dujiangyan Water Project, 41

EEcological compensation mechanisms, xxvi

current application, 99historical and conceptual development, 98–99legal framework, 99, 110 n.2payment for ecosystem services and, 97potential limitations, 97, 99–100purpose, 97rationale, 98recommendations, 109, 139

Economic functioningChina’s growth rate, 21costs of water pollution, xvii, xix, 2, 19, 112, 128costs of water supply shortages, xix, 2, 19development costs of water scarcity, 21ecological compensation mechanisms, 98, 99environmental disaster fund, xxix, 136, 139–40government financing for pollution prevention and

control, xxviii–xxix, 37–38, 48pollution levies and fines, xxviii, 39, 120, 122–23,

134–35regional socioeconomic patterns, 23urban wastewater treatment investment, 37–38water pricing effects on poor consumers, xxv, 88–93See also Payments for ecosystem services; Pricing,

waterEconomic value of water

case analysis, 87, 88fcurrent shortcomings of water rights system, 36–37international comparison, 35sectoral differences, xviii, 26, 37See also Productivity, water

Emergency Response Law, 133Enforcement of regulations

compliance with pollution control measures,113–14, 119–21, 139

current weaknesses, 43–44

institutional framework, 43mechanisms and procedures, 43pollution control recommendations, xxvii, 123,

124–25pollution fines and levies, 39, 120, 122–23, 134–35public disclosure requirements, 53public participation, xxi, 43–44, 46recommendations for improving, xxvii, 45–46shortcomings of current pollution prevention, xxviisupervision and inspection, 46U.S. model, 44water rights system, xxii, 68–69, 78

Environmental effects of water crisiscosts, xix, 2research needs, xxxwater withdrawal effects, 16–17

Environmental Impact Assessment Law, xxxi, 55, 143Environmental Information Disclosure Decree, 53Environmental protection bureaus, 32, 121Environmental Protection Law, xxii, 99, 115European Union, 48, 49f, 53–54, 57–58Evapotranspiration-based water management

advantages, xxiv, 35f, 62, 69–70, 79case example, 62, 63f, 70–71principles, xxiii, 35f, 62recommendations, xxiii, xxiv, 138research needs, 79water balance theory, 62

FFisheries resources, pollution costs, 19–21Five Year Plan, 9th (1996–2000), 27, 29, 37–38Five Year Plan, 10th (2001–05), 27, 29, 37–38Five Year Plan, 11th (2006–10)

enforcement of environmental law and regulations,43

pollution control investment, 37wastewater treatment targets, 116water resource management goals, xvii, 2, 27–28

Fluorine contamination, 18–19Forest Ecosystem Compensation Fund, 99Forestry management, 99Framework for Water Rights System Development, 34France, 33, 48–49, 58Friends of Nature, 56Future challenges and opportunities, xxxi, 1, 23

research needs, 140–43

GGaomi, 90Geographic information systems, xxiiiGeographical distribution. See Regional differencesGermany, 120

I N D E X


Governance, wateraction plan for reform implementation, 140administrative versus market-based management,

36–37, 40, 48analytical methodology, 6causes of water pollution, 113challenges and opportunities, xxxi, 137, 143conceptual basis, xix–xx, 42current shortcomings,xvii, xx–xxi, 1, 40, 48definition, 42goals of 11th Five Year Plan, xvii, 2, 27–29good qualities, 42, 59impact assessment, xxxiinstitutional structure, xx–xxi, 29–34legal framework for, xx, xxi, 42, 60local resistance to central authority, 47–48management strategies, 2national-level coordination, xxi–xxii, 138policy failures, 34–39recognition of water supply problems, 27recommendations for improving, xxi–xxii, 59–60,

137–40reported compliance with pollution control regula-

tions, 113–14research needs, 140–43thematic areas, xx, 2–3See also Allocation of resource; Enforcement of regu-

lations; Institutional structure of water governancesystem; Legal system; Public participation in pol-icy development; Transparency of water systemgovernance

Government Information Disclosure Regulation, 52Grassland Law, 99Groundwater depletion

current rates, 9economy, 21governance shortcomings, xxiipollution and, xix, 17, 26salinity levels and, 17–18subsidence effects, 18trends, xix, 2, 17

Guidelines on Deepening Reform of Economic System, 2

HHai basin

economic value of water, xviii, 3, 26, 36–37, 87, 88fgroundwater extraction, 17water flow trends, 11, 16–17water resources, 10

Hangzhou City, 115Health risks of water pollution

drinking water quality, 18–19mortality, 20f

social and economic costs, xix, 2, 19Heihe basin, 71, 76Hu Jintao, 34Huai basin

economic value of water, 26pollution control outcomes to date, xxviipollution control planning, 3, 114water flow trends, xviii, 11water quality data, 32water resources, 10

Huang Basin (Yellow River)economic value of water, 26pollution incidents, 14, 127, 128wastewater treatment capacity, 116–17water flow trends, 11, 16–17water resources, 10water rights, 69

IIndustry sector

economic value of water, 26, 37, 38twastewater discharge, xix, 1, 12water productivity, xviii, 25, 26, 35water use goals of 11th Five Year Plan, 27water withdrawals, 25

Institutional structure of water governance systemcurrent shortcomings, xx–xxi, 29–33, 40, 47–48enforcement of laws and regulations, 43integrated approach, 33–34, 51inter-agency relationships, 51international comparison, 48–50legal framework, 42–43, 46national level, 51, 60, 138payments for ecosystem services, 103pollution control system, 121pollution event response, 130, 133–34recommendations for improving, xxi–xxii, 51–52,

60, 138significance of, in improving water resource manage-

ment, 47Integrated river basin management, 50, 95, 98, 115Irrigation

current practice, 21economic value of water, xviiiefficiency, 26marginal opportunity costs, 88regulation, 34tradable water rights markets, 75–76waste in, xviiiwastewater use, 19water abstraction permits, 68water pricing, 36, 88

Israel, 64, 65f

I N D E X


JJapan, 119Jiakou, 86Jiangjin, 90

LLanzhou, 86Lashihai Nature Reserve, xxvi, 106–9Law on Environment Protection, 59Legal system

action plan for reform, 45ambiguous provisions, 45, 46conflicting provisions, 45, 46current shortcomings, xx, 43ecological compensation mechanisms, 99for water governance, xxincomplete coverage, 44–45information disclosure requirements, 53legislative process, 46payments for ecosystem services, 99, 103pollution control, 121, 122–25, 129–30, 133recommendations for improving, xxi,

45–47, 60, 138recommendations for improving pollution preven-

tion, xxvii, xxviiirequirements for nongovernmental organizations,

57, 59requirements for public participation in governance,

55–56, 57, 59scope of water governance, 42structural framework, 42–43transparency of water system governance,

xxi, 53, 55water pricing, 84water rights system, 34, 67–68, 79–80See also Enforcement of regulations

Lijiang City, 3, 91–92, 106–9

MMarginal opportunity costs of water supply, xxiv,

86–88, 91Markets, water

administration, 80–81benefits, 72case studies in China, 74–77challenges for implementing system of, xxiii, 80conceptual basis, 71–72disadvantages, 72dispute resolution, 79–80infrastructure support, 79international experience, 73–74recommendations for, xxii, xxiv, 138spot markets, 72

tradable water rights, 72water banking, 74

Mexico, 66Ministry of Agriculture, 32Ministry of Environmental Protection (MEP), xxx,

30–31, 32, 51, 52, 121Ministry of Transportation, 32Ministry of Water Resources, xxi, xxii, 30–32, 34, 43,

51, 52, 56, 67, 74Mongolia, 69, 75–76, 127Mortality, water pollution-associated, 20fMunicipal sewage, xix, 1, 12–13

NNanjing, 86National Chemical Registration Center, xxixNational People’s Congress, 43, 46National Plan for Environmental Emergency Response, 132Natural Forest Protection Project, 99New Countryside Development program, 124NH3-N discharges, 12Nongovernmental organizations

environmental, in China, 56government-sponsored, 57recommendations for regulatory reform, 59, 138regulatory challenges for, 57

Nu River, 56

OOrganic pollutants, 12, 13–14Organisation for Economic Co-operation and

Development (OECD), 119

PPayments for ecosystem services

advantages, xxvi, 97, 110beneficiary identification, 100case study, 106–9conceptual basis, xxvi, 100economics, 100–101implementation, 102–3international experience, 103–5legal framework, 99, 103management costs, 103mechanics, 101, 102fnumber of providers and beneficiaries, 103payment levels, 100political economy, 106, 110potential applications in China, 105–6recommendations, 109–10, 139scope of services, 100, 101f

Permitsirrigation, 34

I N D E X


pollution control revenues from, 120–21wastewater discharge, xxviii, 124water withdrawal, xxiii, 67–68, 80

Pollution event responsebasic elements, 128–29current system, xxix, 132–35environmental disaster fund for, xxix, 136, 139–40financial responsibility, 131–32, 134–35first responder training, 134, 136information system for, xxix–xxx, 129, 132, 135–36institutional responsibility, xxix, 130, 133–34international agreements, 129–30international experience, 129–32legal framework, 129–30, 133outcome monitoring, 135, 136planning and preparedness, 130–31, 134pollution prevention versus, 122public disclosure, xxx, 132, 135, 136recent history, 14, 127–28recommendations for improving, xxix–xxx, 135–36,

139–40risk assessment, 132–33system elements, xxix

Pollution, waterassociated mortality, 20fcentral government enforcement, 123–24, 139chemical oxygen demand, xxvi, xxvii, 111command-and-control methods for controlling,

119–20components of pollution control plans, 114control mechanisms, 119–21control planning, xxviii, 124costs, xvii, xix, 2, 19–21, 112, 128current and emerging threats, 98, 111–12distorted economic incentives, 39fdrinking water, 18–19, 112, 122fines and levies, xxviii, xxix, 39, 120, 122–23,

134–35goals of 11th Five Year Plan, 27–28governance failures contributing to, xxvii, 113,

114–16governance structure, 32government financing for prevention and control,

xxviii–xxix, 37–38, 48, 125groundwater extraction and, 17in rural areas, xxviii, 124legal framework, xx, 121, 122–25local responsibility, 115–16, 123market-based mechanisms for controlling, 124monitoring system, xxviii, xxx, 124nonpoint sources, 1–2, 13–14obstacles to improving control, 40prevention planning, 130–31, 134, 135, 139

recommendations for improving prevention of,xxvii–xxix, 123–25, 139

regional differences in capacity to control, 112–13reported compliance with control measures, 113–14role on environmental NGOs in China, 56shortcomings of current prevention system, xxvii, 48,

111source information, 121–22taxes on products that pollute, 120trends, xviii–xix, 11–12, 112wastewater discharges, 1, 11–12wastewater treatment costs based on effluent quality,

88water supply and, xix, 11, 21, 26See also Health risks of water pollution; Quality of

waterPopulation patterns and trends

per capita water supply/use, xviii, 1, 9–10projections, 1, 23regional differences, 23socioeconomic patterns, 23urbanization trends, 21

Precipitation patterns, xviii, 10Pricing, water

affordability considerations, 89–91consumption metering, 94, 95current system, xxiv, 36, 83–86delivery cost, 86–87depletion costs, 87, 95–96determinants, xxiv, xxvenvironmental cost, 87goals of reform, 95gradual implementation, 94, 96implementation strategies, xxv, 94in rural communities, 92–93increasing block tariffs, 84, 91–92, 96international experience, 96legal basis, 84marginal opportunity costs, xxiv, 86–88, 91, 94, 95,

96, 139performance incentive systems in reform of, 94price trends, 83, 84profits generated from, 94–95public resistance to reform, 93recommendations for, xxiv, xxv–xxvi, 88, 95–96, 139regional variation, 85f, 86, 87revenue distribution, 84social impact considerations, xxv, 88–89, 96sociopolitical obstacles to reform, 88strategies for protecting poor consumers, 91–93vouchers for low-income consumers, 92water development fee, 84water resource fee, xxv–xxvi, 84, 87, 95, 96

I N D E X


Productivity, watercurrent shortcomings, xviii–xix, 35, 137determinants, xviii, 25international comparison, xviii, 35pollution effects, 21research needs, 140role of water markets, 72sectoral patterns, xviii, 25–26technical interventions to improve, 25urban distribution losses, 26water pricing effects, 36See also Economic value of water

Public participation in policy developmentcurrent status, xxi, 55–56environmental NGOs, 56, 57forms of, 56goals of good governance, 42government role in promoting, 58–59international experience, 57–58legal requirements, 55–56, 57, 59procedural distortions, 57public awareness of opportunities for, 56–57rationale, 55, 58recommendations for improving, xxii, 58–59, 138shortcomings of current governance system, 56–57water management organizations, 59water rights system, 66–67, 78

Public perception and understandingenforcement of laws and regulations and, 43–44, 46of opportunities for public participation in gover-

nance, 56–57of right to information, 55pollution event information, 132, 135, 136recommendations for improving, xxiiresistance to water pricing reforms, 93transparency of water system governance, xxi, xxiiSee also Public participation in policy development;

Transparency of water system governance

QQixinghe Natural Reserve, 116Quality of water

current status, xix, 14, 111–12drinking water, 18–19governance responsibility and oversight, 30grades, xix, 14, 111–12lakes and reservoirs, 15tmonitoring, 135public disclosure of data, 52–53regional differences, 14river sections, 15f, 16fsurface water, 16f, 23–24n.7trends, 14See also Pollution, water

RRecycling and reuse of wastewater, xviii, 36, 40n.5Regional differences

economic value of water, 26population distribution, 23wastewater treatment capacity, 116–19water pricing, 86, 87water quality, 14water rights allocation, 67water supply, xviii, 9–10

Regional Environmental Supervision Centers, 43Regional management, river basin management and, xviiResearch

case studies, 3. See also specific case studydata sources and methodology for assessing current

water management system, xvii–xviii, 2, 3–5, 4fneeds, xxx, 140–43

Rights-based water managementadministrative structure, 31–32, 80–81, 138case examples in China, 69, 70challenges to comprehensive implementation, 77–78conceptual components, 61–62contracts and claims system, 63fcurrent pricing strategies, 36–37definition, 61definition of water ownership, 48, 77, 78–79environmental sustainability considerations, 78legal framework, 34, 67–68, 79–80levels of, 68local conditions in development of systems for, 69measurement of usage, 34–35monitoring systems for, 64, 65f, 78public participation in system of, 66–67, 78rationale for rights-based management, 62–64recommendations for improving governance,

xxiii–xxiv, 80–81, 138registration systems for, 64requirements for system of, 64–65resource assessment, 64shortcomings of current governance, xxii, 34–35, 48,

68–69supply-side focus, 35system inconsistencies, 77–78transfer provisions, 34transparency, 62, 64, 78See also Allocation of resource; Markets, water

River basin managementcommission structure and function, 32–33current governance shortcomings, xx–xxiecological compensation mechanisms, xxviinstitutional structure, 30–31, 49–50, 51–52, 60, 67integrated approach, 50, 95, 98, 115legal framework, 46

I N D E X


pollution control failures, 114, 115public participation, 59recommendations for improving, xxii, 46–47,

51–52, 60regional management and, xviiresearch needs, xxxU.S. model, 47f, 49–50water rights system, 34

Rural areaspollution control in, xxviii, 116, 124See also Agriculture

SSaltwater intrusion, 17–18Sand Control Law, 99Service sector

economic value of water, 37, 38twater productivity, 25water withdrawals, 25

Shanghai, 14, 86, 87Shortages, water

causes, 21–23, 35, 41costs, xix, 2definition of scarcity, xxviii, 10future risk, xxvii, 1implications for China’s development, xvii, 21pollution and, xviii–xix, 21, 26shortcomings of supply-side management, 35technical solutions, 25, 26–27See also Supply, water

Singapore, 49Sloping Land Conversion Program, 99Song-Liao River basin, 71Songhua River chemical spill, 3, 14, 19, 122, 127, 128f, 134South Africa, 66State Administration for Worker Safety, xxxState Council, 34, 46State Environmental Protection Administration

monitoring and enforcement activities, 43public disclosure rules, 52, 55–56

State Water Resources Commission, xxi–xxii, 51, 138Strategic environmental assessments, xxxi, 143Subsidence, 18Supply, water

climate change and, 11current resources, xviii, 1future challenges, 98geographical distribution, xviii, 1, 9–10government recognition of problems in, 27historical significance, 41, 137international comparison, xviiimodeling, 4–6per capita, xviii, 1, 9

productivity, xviii–xixprojected demand, 22t, 23sources, 9, 98temporal distribution, xviii, 10See also Quality of water; Shortages, water

Surface water quality, 16f, 23–24n.7Switzerland, 129, 130f

TTai Lake, 41, 112, 122, 127Technology for water management

analytical methodology, 6desalination projects, 27evapotranspiration approach, xxiiito increase supply, 25, 26–27

Temporal distribution of water supply, xviii, 10Tongxu, 90Total nitrogen, 12, 14Total phosphorous, 12, 14Township and village industrial enterprise wastewater

discharges, 12, 116, 124Trading water rights. See Markets, waterTransboundary rivers, xx–xxi, 32, 115Transparency of water system governance

ambiguity of requirements, 53current system, xxi, 52–53goals of reform, 54good qualities, 42, 52in water rights-based management, 62, 64, 78information systems for, 55international experience, 53–54law enforcement and, 43–44legal requirements, xxi, 53, 55public awareness and understanding of requirements

for, 55recommendations for governance reform, xxii, 54–55water quality data, 52–53

Tuo River, 127Tuojiang River, 122Typhoid, 19

UUnited Kingdom, 48, 129, 130f, 131, 132United States

law enforcement model, 44fpayments for ecosystem services systems, 103–4pollution control system, 48pollution incident response, 129, 130f, 131–32public disclosure requirements, 54public involvement in governance, 58river basin management, 47f, 49–50water markets, 73–74water rights management model, 62, 63f

I N D E X


Urban areaspopulation patterns, 21regional variations in wastewater treatment capacity,

117–19wastewater treatment, xix, 1, 12–13, 21–23, 37–38water distribution losses, 26water markets, 74–75water pricing, 36, 84–86water use goals of 11th Five Year Plan, 27

WWastewater management

current discharges, 1, 11–12current treatment capacity, xxviidischarge permitting, xxviii, 124goals of 11th Five Year Plan, 116in small towns and villages, 116incentives for improving, 120, 121international experience, 119–21irrigation with wastewater, 19marginal environmental cost of water, 87recommendations for rural areas, 124recycling and reuse, xviii, 36, 40n.5regional variation in capacity, 116–19regional variation in fees, 86spending, 37–38treatment costs, xxiv, 36, 84, 86, 87treatment costs based on effluent quality, 88trends, xix, 86untreated discharges, 1, 12–13, 116urban areas, 21–23, 37water pricing effects on, 36

Water affairs bureaus, 31–32Water and Soil Conservation Act, 99Water development fee, 84

Water Law, 34administrative structure, 46amendments (2002), 28in legal framework for water governance, 43, 45public participation provisions, 57, 59recommendations for improving, xx, xxii, 51water rights system, 67, 68–69

Water Pollution Prevention and Control Lawamendments (2008), 28emergency response provisions, 133enforcement provisions, 43, 122–23local government responsibility under, 115public disclosure requirements, 53recommendations for, 123–24water pricing provisions, 84weaknesses, 44–45, 115, 121

Water resource fee, xxv–xxvi, 84, 87, 95, 96Water Resource Management Commission, 60Water users associations, 56, 80–81Wei River, 115Weishi, 90Wuxi water crisis, 19, 41, 122, 127

XXi’an City, 86Xiang River, 14, 128Xining, 86

YYellow River. See Huang Basin

ZZhangye City, 71, 76Zhejiang Province, 14, 74–75, 84

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E C O - A U D I T

Environmental Benefits Statement

Saved:• 8 trees

• 6 million BTUs oftotal energy

• 710 lbs. of netgreenhouse gases

• 2,945 gallons ofwaste water

• 378 lbs. of solid waste

The World Bank is committed to preserving endangered forests and natural resources. The Office of the Publisher has chosen to print Addressing China’s Water Scarcity on re-cycled paper with 30 percent post-consumer waste, in accordance with the recommended standards for paper usage set by the Green Press Initiative, a nonprofit program support-ing publishers in using fiber that is not sourced from endangered forests. For more informa-tion, visit www.greenpressinitiative.org.

For years, water shortages, water pollution, and flooding haveconstrained growth and affected public health and welfare in manyparts of China. Given continuing economic trends and populationgrowth, the pressures on the country’s water resources are likely toworsen. The widening gap between water supply and demand,along with deteriorating water quality caused by widespreadpollution, suggests that a severe water scarcity crisis is emerging.

Addressing China's Water Scarcity addresses the emerging watercrisis and the need for China to reform and strengthen its waterresource management framework. It covers key issues includingwater governance, water rights, water pricing and affordability,watershed ecological compensation, water pollution control, andemergency prevention, and it identifies the measures needed toeffectively move forward in these areas. In line with the broadstrategy of developing a market economy, the book concludes thatthe focus of the reform needs to be on clarifying the role of andrelationships among the government, markets, and society;improving the efficiency and effectiveness of water managementinstitutions; strengthening the compliance and enforcement ofwater pollution control; and fully embracing and using market-based instruments as much as possible.

Addressing China's Water Scarcity - World Bank Document

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