Under The Background Of Rapid Urbanization Pattern Of Urban Water Industry In China

In the rapid process of urbanization, the demand of water supply,water drainage and wastewater treatment is increasing, the standard is improving as well. Huge amount of investment is needed for the construction of corresponding facilities and pipeline network. The traditional model of investment, operation and management by government only can hardly cope with this problem. Therefore, industrialization reform of urban water has been implemented since1990s. There was a lot of practice implemented in the area of market opening, competition introduction and franchise. Urban water industry witnessed a "pulsing progress pattern" in no more the twenty years. Great amount of waterworks and pipeline network was constructed. The efficiency of operation and quality of service were improved. However, because of misunderstanding of the meaning of industrialization and the special characteristics of urban water, there were a lot of issues in the development of urban water. The goal of industrialization is to establish an urban water service system with the characteristics of "high efficiency, high quality, safety, equity and sustainability", which means to widen the investment channel improve the operation efficiency and establish a wholesale and systemic urban water industrialization pattern.This dissertation started from the theory of mixed good and nature monopoly, and analyzed the characteristics of urban water industry thoroughly. The nature of irreplaceability, mixed good, regional monopoly, high sunk cost and high capital density determines that industrialization pattern of urban water needs to balance the relationship between government and market, monopoly and competition, efficiency and equity. From analysis of the urban water development process in the UK and US, we can understand the relationship between urban water industrialization pattern and the phase of urbanization. The framework of institution and laws in these two countries can shine a light on how to establish suitable industrialization pattern and institution framework in China. Whereafter, this dissertation estimated the advantage and disadvantage of the pattern of water enterprises owned by local governments and analyzed the boundary between profitable nature and public nature in urban water industry. After which, the DEA-Tobit model was applied to analyze whether the involvement of non-public economy improved the efficiency of urban water industry. At last, the model of principal-agent under the incentive theory was applied to analyze the factors affecting the probability of renegotiation in franchise contracts. Gombined with the example in China, the current situation of franchise was analyzed and estimated. The main conclusions of this dissertation are as follows:(1) The urban water industrialization pattern and the phase of urbanization are closely related. The pattern of water enterprises owned by local governments coincides with the present phase of rapid urbanization in which China is experiencing. In the future, urban water industry will enter into the stage in which construction and management are equally emphasized. It is possible and necessary for non-public economy to participate in urban water industry.(2) The formation of water development pattern in one country is not only determined by its development track, but also effected by the institution environment. It doesn’t matter whether nationalization or privatization is dominant, and the essential is integrity of institution design and implement ability of policy after establishment of ownership structure. If the public economy is dominant, the institution construction should focus on efficiency, separation of government and enterprises and insuring the independence of public economy. If the non-public economy is dominant, the institution construction should focus on equity, regulation and insuring information transparency of non-public economy.(3) The pattern of water enterprises owned by local government has the advantage of concentrating resource to construct urban water supply and drainage facilities, meeting the requirement of rapid urbanization and protection equity. But the disadvantage of this pattern is that the boundary between profitable and public nature in the field of urban water industry is obscurity, which can cause severe problem of integration of government administration with enterprise. Integration of government administration with enterprise can cause many problems, such as public enterprises losing independence, lack of subsidy standards for government and hindering non-public capital participating. From the net present cost-benefit value analysis and the cost-benefit analysis based on full life cycle of the new programs and existing assets, the boundary between profitable and public nature can be set clearly.(4) On the basis of setting boundary between profitable and public nature, the transformation from state-owned enterprises to franchisor can be achieved after the establishment of corresponding financial system, management concept of state-owned assets and effective negotiation mechanism. The problem of integration of government administration with enterprise will be solved. The ownership and management right then can be separated. If the revenue cannot be shared and the management right can be transferred, the connotation of franchise can be expanded. All forms of enterprises have the equal right to compete a franchise contract. The industrialization pattern of urban water is with the characteristics of public ownership rights as the principal part and pluralistic franchisors.(5) The overall technical efficiency of urban water supply is relatively low, which is mostly caused by the pure technical efficiency, and there is significant difference between cities. When the construction climax passes, the focus of market-oriented reform needs to shift from the large-scale construction of production capacity to improvement of operation efficiency and service quality. The participation of non-public economy and foreign capital have positive impacts on the efficiency of water supply and the efficiency in the cities with participation of non-public is much higher than those without participation of non-state-owned capital, which implies the improvement of industry efficiency can be achieved through widely outsourcing. However, the introduction of non-public economy should be cautious. In the process of non-public economy introduction, competitive market construction and operation efficiency improvement, in order to create favorable institution environment, the regulation system and competition mechanism should be further perfected.(6) Based on the theoretical analysis applying the principal-agent model and case study of franchise programs in China, it is concluded that franchise programs are not very effective in the area with unstable economy and institution environment because of frequent renegotiation between governments and enterprises. In the phase of rapid urbanization, there are a lot of shocks and uncertainty. Under some kinds of circumstance, renegotiation is inevitable. Therefore, it’s not advisable to implement franchise programs in a rush because frequent renegotiation results in great transaction cost. In the phase of stable development, all kinds of franchisor with the ability of professional management and operation can participate in the competitive links by the means of outsourcing, lease and BOT and so on. The construction of franchise institution framework should emphasize in the following aspects:access system, program transfer system, investment return mechanism, risk share mechanism and negotiation/renegotiation mechanism.This dissertation aims to establish an urban water service system with the characteristics of "high efficiency, high quality, safety, equity and sustainability". The research described in this dissertation features several innovations:Firstly, establish an accounting system that can separate profitable assets from public assets. The pattern of in the unit of city and water enterprise owned by local government makes it difficult to separate profitable assets from public assets, which can cause severe problem of integration of government administration with enterprise. This dissertation establishes an analysis framework including net present cost-benefit value analysis and cost-benefit analysis based on full life cycle, based on which an accounting system that can separate profitable assets from public assets is established.Secondly, the industrialization pattern of urban water with public ownership rights as the principal part and pluralistic franchisors is clearly put forward. After separating the profitable assets from public assets, the latter is owned by public. The transformation from state-owned enterprises to franchisor can be achieved after the establishment of corresponding financial system, management concept of state-owned assets and effective negotiation mechanism. The problem of integration of government administration with enterprise will be solved. The ownership and management right then can be separated. If the revenue cannot be shared and the management right can be transferred, the institutional and technical obstacle hindering non-public economy participation can be broken. Non-public economy will have the equal right to compete franchise contracts. The connotation of franchise is not only including models involving assets transfer such as BOT and TOT and so on, but also including models without involvement with assets transfer such as outsourcing.Thirdly, from the perspective of franchise contracts renegotiation to research on the economic and institutional condition that can insure franchise programs operated effectively. This dissertation applied a principal-agent model to determine the factors that would affect possibility of renegotiation. It’s concluded that in some kind of circumstance, renegotiation is inevitable. Franchise programs can be operated effectively under relatively stable economic and institutional environment. Cities in the process of rapid urbanization are not advisable for franchise programs involving with assets and with long period. If this kind of franchise programs is essential for these cities, complete system is necessary. Cities in the phase of stable development can introduce outsourcing service in all competitive links.