China needs to reform and strengthen its water resource management framework including organizational structure, legal framework and water governance, concludes a new World Bank report released in Beijing on Monday. The reform should focus on clarifying the role of and relationships among the government, markets and society; improving the efficiency and effectiveness of water management institutions; enhancing the use of market-based instruments such as water rights, pricing and eco-compensation mechanisms; and strengthening water pollution control enforcement and pollution emergency preparedness.

For years, water shortages, pollution, and flooding have constrained growth and affected public health and welfare in many parts of China. Northern China is already a water scarce region and China as a whole will soon join the group of water stressed countries. Given continuing economic trends and population increase, as well as growing industrialization and urbanization, the pressures on the country's water resources are likely to worsen. The combined pressures of rising water demand over limited supplies and deteriorating water quality from widespread pollution, suggests that a severe water scarcity crisis is emerging.

The new World Bank report Addressing China's Water Scarcity: Recommendations for Selected Water Resource Management Issues commends China's leadership for its awareness of the worsening water situation, and its commitment to transforming China into a water-saving society. The importance of water resource management reform has been recognized and identified as a priority. In response to the requests from Chinese government agencies, the Bank carried out an analytical and advisory activity "Addressing China's Water Scarcity: From Analysis to Action" in 2006-08.

"The objective of this report is to provide an overview of China's water scarcity situation, assess the policy and institutional requirements for addressing it, and recommend key areas for strengthening and reform." notes James Adams, vice president, East Asia and Pacific Region, the World Bank. Based on government priorities, the report focuses on the following areas: water governance, water rights, water pricing and affordability, watershed ecological compensation mechanisms, water pollution control, and emergency prevention.

This report synthesizes the main findings and recommendations from over 30 technical reports, case studies, and background papers recently produced by the World Bank in the areas listed above. Its main messages include:

• China needs to move from a traditional water management system with the government as the main decision-maker towards a modern approach to water governance that relies on (a) a sound legal framework, (b) effective institutional arrangements, (c) transparent decision making and information disclosure, and (d) active public participation. Improving water governance will require the government to reform existing laws and regulations, strengthen law enforcement, reform and unify the organizational framework for better decision making at the national level and greater local ownership and participation at the river basin level, and strengthen legal provisions for public information and participation.

• To allow greater scope for market-based approaches, China needs to establish clear property rights for water. Prerequisites include the development of basin-level water resource allocation plans that give first priority to ecological needs, the conversion of traditional water allocation entitlements into tradable water rights, and the strengthening of water administration by clarifying the conditions, procedures, rights and obligations of the state, communities, enterprises and individuals for the withdrawal, consumption, protection and transfer of water rights.

• To provide appropriate incentives for the adoption of water saving technologies and behaviors, water prices need to be allowed to rise to reflect its full scarcity value. The first step is for water and sewerage prices to at least cover the financial needs of the water supply and sewerage enterprises. The social impact of the price increases, especially those affecting the poor, can be addressed by implementing an increasing block tariff approach and other social protection measures for residential consumers.

• To enhance incentives for the protection of water sources, China needs to vigorously pilot market-oriented mechanisms for ecological compensation. Mechanisms such as the payments for ecological services approach will improve the effectiveness of ecological compensation and reduce the financial burden on the government of providing adequate incentives for protecting the upstream ecosystems that are essential for the long-term supply of good quality water.

• To control and solve China's serious water pollution problem, the government has to use all available legal, institutional and policy instruments to mobilize the public and motivate polluting sectors to comply with applicable regulations. This will require a strengthening of the wastewater discharge permit system, more aggressive use of the litigation systems to protect the public interest, greater attention to the control of non-point pollution from agriculture, and better preparedness for water pollution disasters.

"Some of the recommendations, such as the reforms of river basin commissions and the water resource fee management as well as water quality monitoring and disclosure, may not be in line with sectoral or local interests but we believe that they are essential for the nation to effectively address the emerging water scarcity crisis." says Jian Xie, World Bank Senior Environmental Specialist and Principal Author of this report.

"There is no doubt that China is facing a major challenge in managing its scarce water resources to sustain economic growth in the years ahead. But there are grounds for optimism; the Chinese, who have demonstrated immense innovative capacity in their successful program of economic reform, can and should take another bold move in reforming the institutional and policy framework to make it become a world leader in water resource management," concludes David Dollar, World Bank Country Director for China.

(China Development Gateway January 12, 2009)