The Study Of Water Industry’s Competition Policy In China

As the speed of urbanization and industrialization are accelerated, water industry will be in a new expansion. China’s water industry has been existed as a monopoly for a long time and state-owned water companies have been acted as dominant companies. Comparing with overseas water industries, water industry’s regulation and competition policy are inadequate. So far the study of water industry’s competition policy is not adequate. In this paper two competition policies that vertical separation and competition are analyzed in order to estimating the policies’effect in current economy surroundings.At first, the impact of vertical separation on water industry is analyzed in this paper. In the analysis local governor’s demand for investment are concerned. It is supposed that local governor is subject to investment when it chooses to be vertical separation or not. It is found in economic model that local governor has no incentive to use the competition policy of vertical separation. Even though vertical separation is used water price won’t decrease. The water prices of cities which use the competition policy of vertical separation are analyzed by econometric model and the empirical test result is in accordance to the result made by economic model.Secondly, the impact of competition on water industry’s efficiency is studied in this paper. The study is made in two steps. The first step is to use DEA to analyze water industries’annual efficiency in18provinces. Besides, dynamic efficiency changes from2004year to2010year are calculated by DEA-Malmquist index. The second step to analyze the impact of competition on water industry’s efficiency by econometric model while urbanization and industrialization are considered as control variables. It is found by empirical analysis that competition doesn’t cause efficiency increase in water industry.In conclusion the impact of two competition policies including vertical separation and competition is studied in this paper. The result shows that the policies can’t lead to significant increase of efficiency in water industry. The main reasons are that the capacity of regulation in water industry isn’t adequate and water pricing is lack of incentive. Therefore the suggestions are to set independent regulator for enhancing regulation capacity and to set a water pricing having incentive mechanism.The paper consists of4parts. The first part is the introduction which introduces the situation of water industry, reviews the research made by scholars and depicts the methods used in this paper and the framework of this paper. The second part is the study of vertical separation in which literatures are reviewed. Besides, regulation model and econometric model are used to analyze vertical separation. The third part is the study of competition in water industry. In this part the methods of efficiency calculation are introduced, the water industry’s efficiency is calculated and the econometric model is used to analyze the impact of competition on water industry while urbanization and industrialization are set as control variables. The fourth part is conclusions and suggestions. In this part the results are concluded, the reason why the completion policies can’t promote efficiency is considered and corresponding suggestions are put forward.