| Water is one of human's life necessities. Because of its characterssuch as natural monopoly and externality which can lead to "marketfailure ", the urban water industry has traditionally been publicly-owned,with product delivered by the government at a very low price. Citizensalways deem it their natural right to get clean drinking water and wastewater services. However, because of global water resources shortage andgovernment's growing financial pressure to supply urban water at lowprices, it has become a popular concern that "government failure" is moredangerous than "market failure". As a result, there emerged the tide of"marketization " and " privatization "in the urban water industry all roundthe world since 1980s. The attitude and participation related to the urbanwater industry has also changed greatly. "Efficiency" has replaced"rights" as the primary concern in urban water industry. Urban water hastransformed from "public goods" delivered to citizens free or at lowprices, to "tradable commodity" sold to "consumers". Private sector isallowed to invest and even become an owner in the urban water industry. Such changes provide opportunities for the private sector to invest inthe urban water industry. However, as it will harm public sanitation ifdrinking water and sewage service provided is not up to standards, and asprivate sector has no motive to supply drinking water and sewage servicefor the poor, the government still needs to carry out stringent supervisionon the urban water industry and offer proper regulatory arrangement. Private sector must consider these issues when investing in the urbanwater industry, and should take measures to meet the government'srequirements and people's will. To some degree, the investment of theurban water industry is not only an economic issue but also a political one,which requires cooperation from all relevant parties to form a healthyoperational environment and mechanism. As industrialization and urbanization accelerates in China, problemssuch as water resources shortage, environmental pollution and insufficientsupply of urban water become more and more serious, which havealready hampered the sustainable growth of China's economy. Traditionalmanagement system and supply methods are too backward to carry on.Mr. Wang Nucheng, China's Minister of Water Resources remarked thatwater resource management in China has stepped from "engineeringproject era" into "resources management era". Therefore, it is of practicalsignificance to analyze China's water resources management and urbanwater sustainable development, using economic methodologies, and toexplore the market-oriented investment and financing methods of China'surban water industry. The purpose of this paper is to use economic methodology to analyzeand set up the framework of market-oriented urban water industry. Henceeconomic theory analysis and case study and induction methods areadopted in this article. The thesis consists of nine chapters. Chapter one is literature review,introducing the theory of private sector investment in the urban waterindustry. Chapter two reviews the history of private sector investment in theurban water industry, analyzes the reasons for private sector participationin the urban water industry and summarizes the experiences and lessonsof both the government and private sector in the urban water industry. Chapter three introduces the basic character of water, analyzes thecomplexity of water management and sums up the importance, marketstructure and economic character of the urban water industry. Chapter four focuses on the investment characteristics and industrialregulations of the urban water industry. Because the urban water industryhas characters such as natural monopoly, externality, economy of scaleand scope, the urban water industry must be regulated. Chapter five analyzes the conditions and methods in which the privatesector invests in the urban water industry. The market of water services iscreated by government to some degree. Nevertheless, to attr...
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