Skip to main content Accessibility help
Hostname: page-component-568f69f84b-r4dm2 Total loading time: 0.24 Render date: 2021-09-22T21:59:02.377Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true, "newUsageEvents": true }

Market Failure or Governmental Failure? A Study of China's Water Abstraction Policies

Published online by Cambridge University Press:  05 January 2012

Wei Li
Macquarie University, Sydney. Email:
Melanie Beresford
Macquarie University, Sydney.
Guojun Song
Renmin University of China, Beijing.


China's water abstraction policies are significant for illustrating the application of market-based instruments in a transitional and developing country and for shedding light on improving China's water management system. This article presents a new approach to analysing applications of market-based instruments for water resources in China. Expanding the analysis beyond a rational choice approach, it demonstrates the institutional dimension of policy implementation at the local level in China. Four peculiar features of China's water institutions influence local governments in dealing with water abstraction differently from how regulators might expect. This explains local governmental failures and the implementation of water abstraction policies in several ways, including the setting of charges at low levels, a lack of necessary monitoring and sanctions, few incentives to collect charges diligently, and failure to provide accessible information for the public.

Copyright © The China Quarterly 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


1 E.g. Wu Mulin argues that the main problem with China's abstraction policies lies in low charges so the government should increase them: Mulin, Wu, “Jiangxi shuiziyuan fei xianzhuang, cunzai de wenti jiqi biaozhun de kexue queding” (“Status quo, existing problems and scientific standards of water abstraction charges in Jiangxi”), Jiage yuekan (Prices Monthly), No. 2 (2003), pp. 2224Google Scholar.

2 Jinmian, Han and Xiaoqiang, Ma, “Gongsheng yu guodu: Zhongguo shuiquan shichang de goujia he yunxing” (“Co-existence and transition: setting up a framework for Chinese water property markets”), Zhongguo renkou, ziyuan yu huanjing (China Population, Resources and Environment), Vol. 18, No. 5 (2008), pp. 161–67Google Scholar.

3 Hahn, Robert W, “Economic prescriptions for environmental problems: how the patient followed the doctor's orders,” Journal of Economic Perspectives, Vol. 3, No. 2 (1989), pp. 95114CrossRefGoogle Scholar; Hearne, Robert and Easter, William, “The economics and financial gains from water markets in Chile,” Agricultural Economics, Vol. 15, No. 3 (1997), pp. 187–99CrossRefGoogle Scholar; Cowan, Simon, “Water pollution and abstraction and economic instruments,” Oxford Review of Economic Policy, Vol. 14, No. 4 (1998), pp. 4049CrossRefGoogle Scholar.

4 Pigou, Arthur, The Economics of Welfare (London: Macmillan & Co, 1932)Google Scholar.

5 Stavins, Robert N., “Experience with market-based environmental policy instruments,” in Mäler, K.-G. and Vincent, J. R. (eds.), Handbook of Environmental Economics (Amsterdam: Elsevier Science BV, 2003), p. 360Google Scholar.

6 Downing, Paul B. and White, Lawrence J., “Innovation in pollution control,” Journal of Environmental Economics and Management, Vol. 13, No. 1 (1986), pp. 1829CrossRefGoogle Scholar; Malueg, David A., “Emission credit trading and the incentive to adopt new pollution abatement technology,” Journal of Environmental Economics and Management, Vol. 16, No. 1 (1989), pp. 5257CrossRefGoogle Scholar; Milliman, Scott R. and Prince, Raymond, “Firm incentives to promote technological change in pollution control,” Journal of Environmental Economics and Management, Vol. 17, No. 3 (1989), pp. 247–65CrossRefGoogle Scholar; Jaffe, Adam B. and Stavins, Robert N., “Dynamic incentives of environmental regulation: the effects of alternative policy instruments on technology diffusion,” Journal of Environmental Economics and Management, Vol. 29, No. 3 (1995), pp. S43S63CrossRefGoogle Scholar; Jung, Chulho, Krutilla, Kerry and Boyd, Roy, “Incentives for advanced pollution abatement technology at the industry level: an evaluation of policy alternatives,” Journal of Environmental Economics and Management, Vol. 30, No. 1 (1996), pp. 95111CrossRefGoogle Scholar.

7 This is because of difficulties in measuring the exact magnitude of negative externalities. Indirect methods, such as hedonic pricing and contingent valuation methods, have shortcomings and the evaluated costs are far from comprehensive. E.g. when hedonic pricing uses variations in housing prices to reflect the value of local environmental attributes, the method only captures people's willingness to pay for perceived differences. However, if people are unaware of the links between environmental attributes and their property, the value will not be reflected in house prices.

8 In response, Baumol and Oates have suggested the standards and prices approach. In particular, because assessing the quality of externalities is nearly impossible, they propose that the government should initially establish an arbitrary target for environmental quality. Once a target of environmental quality was set, the use of charges to achieve specific targets will possess a least-cost optimality quality. Moreover, the information costs of the procedure are very low because a government could always adjust or readjust the charging levels to achieve the desired targets. See Baumol, William and Oates, Wallace E., “The use of standards and prices for protection of the environment,” The Swedish Journal of Economics, Vol. 73, No. 1 (1971), pp. 4254CrossRefGoogle Scholar; Baumol, William and Oates, Wallace, The Theory of Environmental Policy (Cambridge: Cambridge University Press, 1988)CrossRefGoogle Scholar.

9 Chung, Jae Ho, “Studies of central–provincial relations in the People's Republic of China: a mid-term appraisal,” The China Quarterly, No. 142 (1995), pp. 485508Google Scholar.

10 China Ministry of Water Resources and Nanjin Hydraulic Research Institute, 21 shiji chuqi Zhongguo dixiashui ziyuan kaifa liyong (China's Groundwater Exploitation and Conservancy in the Beginning of the 21st Century) (Beijing: Zhongguo shuili shuidian chubanshe, 2004), pp. 32, 111–23Google Scholar.

11 The 1988 Water Law stipulated that the central government would set guidelines on abstraction policies design, while provincial governments would design and implement regulations according to local hydrological and economic conditions.

12 In 1993, the Ministry of Electricity and Industry issued a circular to provincial governments stating that hydroelectric and thermal power plants must be exempted from abstraction licence and abstraction charge policies since power production did not actually consume water (Circular on Problems Concerning Levying Abstraction Charges and Reservoir Development Fees for Hydroelectric Power Plants, 1993). However, the Ministry of Water Resources immediately issued the Circular on Collecting Abstraction Charges (1993) to provincial governments renouncing the exemption of hydroelectric and thermal power plants and stating that an abstraction charge is a user fee applied to whoever uses the resources. The difficulties faced by provincial governments in implementing these policies are easy to imagine.

13 Hong Kong and Macao are excluded from this study.

14 Nickum, James E., “Is China living on the water margin?The China Quarterly, No. 156 (1998), pp. 880–98CrossRefGoogle Scholar; Jiyao, Zhang, “Shuiziyuan” (“Water resources”), in Jiang, Liu (eds.), Zhongguo kechixu fazhan zhanlue yanji (Strategic Research on China's Sustainable Development) (Beijing: Zhongguo nongye chubanshe, 2001)Google Scholar.

15 Qiong, Zhang and Ying, Zhou, Qushui xuke he shuiziyuan fei zhengshou guanli tiaoli shiyi (Regulation of the Management of Water Abstraction Licences and Explanation of Water Resource Charges) (Beijing: Zhongguo shuili shuidian chubanshe, 2006), p. 14Google Scholar.

16 Evidence of groundwater depletion and its impacts in China is contained in China Ministry of Water Resources and Nanjin Hydraulic Research Institute, China's Groundwater Exploitation and Conservancy, pp. 2440Google Scholar.

17 Li, Qiang, Yuan, Shen, Chuanjin, Tao, and Xiaozheng, Zhou, Zhongguo shui wenti (China's Water Problems) (Beijing: Zhongguo renmin daxue chubanshe, 2005), pp. 7496Google Scholar. A total of 547 questionnaires were collected in villages from Beijing, Henan, Ningxia, Inner Mongolia and Shandong, provinces all known for their serious water shortage problems with water availability per capita less than 1,000 m3. It is still shocking to find the serious impacts of water depletion on rural people's livelihood. Another finding from the survey is that, due to the lack of surface water quality and quantity, over 42.7% of the villages depended on groundwater as a main source for irrigation in 2000.

18 Shuilibu (Ministry of Water Resources), Zhongguo shuiziyuan gongbao 2002 (China Water Resource Bulletin 2002) (Beijing: Zhongguo shuili shuidian chubanshe, 2003)Google Scholar.

19 Standing Committee of the National People's Congress and the Ministry of Water Resources (ed.), 2002 shuifa shiyi (The Interpretation of the 2002 Water Law), 2002Google Scholar.

20 Elinor Ostrom and Charlotte Hess “Private and common property rights,” working paper (2007), available online at SSRN:, accessed August 2010.

21 Fang, Xing, Yongqi, Chen, and Yanqiu, Wu, “Huanghe qushui xuke edai zhongliang kongzhi guanli” (“The urgent need for total abstraction quantity control of water abstraction in the Yellow River Basin”), Renmin huanghe (Yellow River), Vol. 24, No. 11 (2002), pp. 2729Google Scholar; Yirong, Quan and Hongxia, Liu, “Huanghe liuyu shuiziyuan fei zhengshou gongzuo cunzaide wenti yu gaige shexiang”(“Existing issues in collecting water fees in the Yellow River and corresponding reform proposal”), Renmin huanghe, Vol. 23, No. 1 (2001), pp. 17–18, 26Google Scholar.

22 Xiang, Peng and Heping, Hu, “Huanghe kegong shuiliang fenpei fang'an de zhidu pingjia” (“Evaluation on allocation system of available water in the Yellow River”), Renmin huanghe, Vol. 28, No. 4 (2006), pp. 4143Google Scholar.

23 Dinar, Ariel, Rosegrant, Mark W. and Meinzen-Dick, Ruth, Water Allocation Mechanisms: Principles and Examples, World Bank Policy Research Working Paper, No. 1779 (1997)Google Scholar.

24 Xing, Chen and Wu, “The urgent need of total abstraction quantity control,” pp. 27–29.

25 Lohmar, Bryan, Wang, Jinxia, Rozelle, Scott, Huang, Jikun and Dawe, David, “China's agricultural water policy reforms: increasing investment, resolving conflicts, and revising incentives,” Agricultural Information Bulletins, No. 782 (2003)Google Scholar.

26 Turner, Jennifer L., “River basin governance in China,” China Environment Forum, Vol. 7 (2005), pp. 106–10Google Scholar.

27 Lohmar et al., “China's agricultural water policy reforms.”

28 Shuilibu (Ministry of Water Resources) (ed.), Shuili tongji gongbao 2002, 2007 (Statistics Bulletin on China Water Activities 2002, 2007) (Beijing: Zhongguo shuili shuidian chubanshe, 2003, 2008)Google Scholar; Angang, Hu, Shaoguang, Wang and Xiaoguang, Kang, Zhongguo diqu chaju baogao (Report on Regional Disparities in China) (Shenyang: Liaoning renmin chubanshe, 1995), ch. 4Google Scholar; Shaoguang, Wang, Tiaozhan shichang shenhua: guojia zai shichang zhuanxing zhong de zuoyong (Challenging the Myth of Market: the Role of the State in Economic Transition) (Hong Kong: Oxford University Press, 1997)Google Scholar.

29 E.g. according to data from MWR, in the 2008 fourth quarter water conservancy investments by the central government increased to 18 billion yuan yet WRBs still needed 16.8 billion yuan investment from local governments to implement the projects: MWR, “Fourth quarter increased investments from central government” (2008), available online at, accessed August 2010.

30 Fryxell, Carlos W.-H. Lo and Gerald E., “Governmental and societal support for environmental enforcement in China: an empirical study in Guangzhou,” The Journal of Development Studies, Vol. 41, No. 4 (2005), pp. 558–88Google Scholar.

31 Yang, Dali, “Patterns of China's regional development strategy,” The China Quarterly, No. 122 (1990), pp. 230–57CrossRefGoogle Scholar; Liming, Zhu, “Quyu jingji guanxi shitiao: zhengzhuang, jili he zhengzhi fanglüe” (“Ill-balanced regional economic relations: symptoms, mechanism and remedial strategy”), Jingji yu guanli yanjiu (Research on Economics and Management), Vol. 2, Nos. 59 (1992), p. 50Google Scholar.

32 Long, Guoying and Ng, Mee Kam, “The political economy of intra-provincial disparities in post-reform China: a case study of Jiangsu province,” Geoforum, Vol. 32 (2001), pp. 215–34CrossRefGoogle Scholar.

33 Hendrischke, Hans J. and Feng, Chongyi, The Political Economy of China's Provinces: Comparative and Competitive Advantages (London: Routledge, 1999), pp. 814Google Scholar.

34 Yonglian, Cao, Guohua, Fang and Chunmei, Mao, “Woguo shuiziyuan fei zhengshou he shiyong xianzhuang fenxi” (“A study of the collection of water abstraction charges and revenue usage in China”), Shuili jingji (Journal of Economics of Water Resources), Vol. 26, No. 3 (2008), pp. 2629Google Scholar.

35 Haichang, Feng, “Guanyu Dezhoushi yifa zhengshou shuiziyuan fei de sikao” (“Reflection on collecting water abstraction charges according to the legislation in Dezhou city”), Shangdong shuili (Shandong Water Resources), No. 1 (2007), pp. 5457Google Scholar; Qiong, Wu, “Haozhoushi shuiziyuan fei zhengshou gongzuo yu jianyi” (“Suggestions on collection of water abstraction charges in Haozhou city”), Jianghuai shuili keji (Jianghuai Water Resources Science and Technology), No. 5 (2007), pp. 4041Google Scholar.

36 Braithwaite, John, “The nursing home industry,” in Tonry, M. (ed.), Beyond the Law: Crime in Complex Organizations (Chicago: University of Chicago Press, 1993)Google Scholar.

37 Quan and Liu, “Existing issues in collecting,” pp. 17–18, 26; Weiping, Liu, Guoxin, Wang, Enhong, Guan, Guangbin, Jiang and Xian, Chen, “Guanyu shuiziyuan fei zhengshou guanli qingkuang de diaoyan” (“Report on an investigation into management of water resources fee collection”), Shuiziyuan guanli (China Water Resources), No. A03 (2003), pp. 2629Google Scholar. Cao, Fang and Mao, “A study of the collection of water abstraction charges,” pp. 26–29.

38 Shouhai, Bi, “Qianyi Shanxisheng shuiziyuan fei zhengshou guanli zhidu de wanshan wenti” (“Discussion on improving Shanxi province's collection of abstraction charges and management institutions”), Shanxi shuili (Shanxi Water Resources), No. 1 (2002), pp. 4142Google Scholar.

39 Water users' decisions on compliance should depend on comparing the cost of compliance (abatement costs) with the possibility of getting caught, as well as the expected penalty for non-compliance. See Becker, Gary S., “Crime and punishment: an economic approach,” Journal of Political Economy, Vol. 76, No. 2 (1968), pp. 169217CrossRefGoogle Scholar.

40 Interview with an official from the Ministry of Water Resources, 27 May 2009.

41 Zhenhai, Yang and Jun, Wang, “Shuiziyuan fei zhengshou gongzuo zhong cunzai de wenti ji jiejue banfa” (“Collecting water abstraction charges: problems and solutions”), Zhongguo shuiyun (China Water Transport), Vol. 1 (2008), pp. 192–93Google Scholar.

42 The current WAPs give no financial incentives to ensure that monitoring equipment is operating accurately. Companies are responsible for installing and maintaining water meters at their own cost. However, small-scale collective industries often lack money to invest, and most of them are outside the control of WRBs. See Quan and Liu, “Existing issues in collecting,” pp. 17–18, 26.

43 Lan, Jin and Zhengyong, Miao, “Liaoningsheng shuiziyuan fei zhengshou guanli cunzai de ruogan wenti yu gaige duice” (“Several problems in collection and management of abstraction charges and reform measures in Liaoning province”), Liaoning jingji (Liaoning Economy), No. 8 (2005), pp. 4849Google Scholar; Quan Yirong and Liu Hongxia, “Existing issues in collecting,” pp. 17–18, 26.

44 Interview with staff from a municipal level water resource bureau in Liaoning province, 20 May 2009.

45 Jin and Miao, “Several problems.”

46 In 2005, Kaifeng people's government adjusted its level of abstraction charge. In particular, public water supply for household use was charged at 0.15 yuan/m3, and for other usage at 0.25 yuan/m3. According to the Kaifeng Statistical Yearbook 2007, Kaifeng city's total water public supply was 753.5 million tons, of which 205.5 million tons was for household use and 548 million tons for other usage. Therefore, abstraction charge revenue from public water supply companies alone should have reached 167.8 million yuan.

47 Dinar et al., “Water allocation mechanisms.”

48 Ayres, Ian and Braithwaite, John, Responsive Regulation: Transcending the Deregulation Debate (New York: Oxford University Press, 1992), pp.158–62Google Scholar.

49 Sabatier, Paul A. and Mazmanian, Daniel A., Can Regulation Work? The Implementation of the 1972 California Coastline Initiative (New York: Plenum, 1983)CrossRefGoogle Scholar; Scholz, John, Twombly, Jim and Headrick, Barbara, “Street-level political controls over bureaucracy,” American Political Science Review, Vol. 85 (1991), pp. 829–50CrossRefGoogle Scholar.

Cited by

Send article to Kindle

To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Market Failure or Governmental Failure? A Study of China's Water Abstraction Policies
Available formats

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

Market Failure or Governmental Failure? A Study of China's Water Abstraction Policies
Available formats

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

Market Failure or Governmental Failure? A Study of China's Water Abstraction Policies
Available formats

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *