Economic Analysis Of China's Water System

As China is gaining paces in its economic development, water is rapidly becoming a bottleneck in the national economy, an issue that threatens to affect China's sustainable social and economic development in 21st century. Water shortages as a result of wasteful practices in water use in China's water industry is complicated by the fact that the existent water projects are of poor efficiency and new water projects require tremendous investment, with resources and funds becoming the "double constraint" on traditional technical and engineering approaches to water crisis. Over time the development-oriented supply-side management has failed to cope with escalating water shortage. Allegedly a deficiency of resource, water shortages is in essence an institutional deficiency. The only way out of water shortages is institutional innovation.This thesis, based theoretically on new institutional economics, examines China's water institutions in three aspects. First, on the basis of the institutional change theory, the change of both domestic and foreign water institutions is examined in terms of its driving forces, path, direction and traits. Second, beginning with an analysis of the property of water as a mix goods, a basic analytical framework is constructed and applied for China's water institutions, namely, multi-mechanism water allocation, a triplet water institutions including water law, water policy and water administration, the three supportive market-expansion strategies of water pricing, water rights and water market, and water users' organization as institutional arrangements. Third, with the basic analytic framework about water institutions under the river basin context, Zhangye case in the Heihe river basin, the yellow river turnoff and the south-to-north water transfer project are studied.Five results are identified in this thesis. Firstly, the world is undergoing a transition from the development-oriented supply-side management to the allocation-oriented demand-side management. And China is still at the early stage of the transformation. Secondly, the very nature of water, with its natural, economic and social dimensions, requires a multidimensional allocation mechanism of government control, market regulation and water users' organization so as to avoid government failure, market failure, technology failure and negative externality. Thirdly, water law, water policy and water administration constitute three interactive aspects of China's water institutions, with water rights as the core. Fourthly, water pricing, water rights and water market, and water user organization are three supportive market-expansion strategies for institutional arrangements in China's water institutions. They play an essential role in creating mechanisms of incentives and constraints in water conservation. Finally, case study reveals huge water economy potential and benefits in China's market-expansion water institutions. Adequate institutions are prerequisite for the settlement of water shortages.The government plays a dominant role in establishing the market-expansion water institutions. Firstly, priority should be given to minimizing the high transaction costs of institutional transformation. Secondly, emphasis should be placed on the coordination between water law, water policy and water administration in water reform. Thirdly, the market-expansion water institutions should be executed first of all in the areas that face severe water shortages.