154
7 Water Pricing
7.3 Water Supply Tariff from Hydraulic Engineering
After 1949, China emphasized project construction rather than management in the
water sector. For many years, all costs and expenditures were fully covered by government subsidies. Water was supplied free of charge between 1949 and 1965, while
very few tariffs were collected or levied instead of grains or farmers’ labor inputs
for maintenance in some regions. In 1965, the MWP issued the Water Tariff Collection and Use Management Methods for Reservoir Projects, which specified that the
management, maintenance, and renewal of water infrastructures and facilities with
benefits should be resolved by water tariff collection from beneficiaries, according
to the principles of self-financing, reasonable accumulation (profit), considering the
benefits of beneficiaries, and economic circumstance (ability to pay). However, the
tariff was very difficult to impose due to the poor ability to pay, and tariff revenue
was too low to cover costs because of low standards (Dept. of Water Management,
MWR 1991).
In the early 1980s, the water sector was criticized for being expensive yet ineffective after 1949 and required to reformulate the water pricing system (Central
Committee of CPC 1982). This assessment led to a requirement for the water sector to
summarize lessons learned and improve its operation and management by reforming
water investment and management systems (Qian 1981).
Following the 1981 CPC document, the State Council issued the Water Tariff
Formulation and Collection Management Methods for Hydraulic Engineering in
1985, aiming to guarantee the necessary revenues for the operation, management,
maintenance, and renewal of hydraulic engineering. This document defined cost
contents, tariff groups, and formulation methods. The water supply costs included
operation and management costs, also accounting for maintenance, depreciation,
and other expenditures. The agricultural tariff for grain production was calculated
according to water supply costs, excluding the depreciation from fixed assets by
farmer labor inputs, which for cash crops could be greater than supply costs. The
industrial tariff was formulated according to full costs and a 4–6% investment profit
rate. The tariff revenue was intended to cover the expenditures for the operation,
management, maintenance, and renewal of hydraulic engineering, while the surplus
could be used for development funding (State Council 1985). In most provinces, the
detailed implementation regulations were issued after the national method.
Although it is highly idealized, in theory, the 1985 Methods has solved the fundamental issues for a sustainable water pricing mechanism, such as clear cost grouping,
cost recovery, and differentiated tariff structure. At that time, however, the tariff
revenue was the administrative charge and was managed as the governmental out-ofbudget capital in 1992.
1 More importantly, water tariffs were not an issue of costs.
Considering China’s weak agricultural production and high inflation rate in the late
1980s, the collection standard had never met the requirements of the Methods and
the collection process faced many difficulties.
1 Questions and Answers to the Management Methods for Water Supply Tariffs from Hydraulic
Engineering, available at https://www.chinawater.net.cn/Journal/cwr/200416/16.htm.
7 Water Pricing
7.3 Water Supply Tariff from Hydraulic Engineering
After 1949, China emphasized project construction rather than management in the
water sector. For many years, all costs and expenditures were fully covered by government subsidies. Water was supplied free of charge between 1949 and 1965, while
very few tariffs were collected or levied instead of grains or farmers’ labor inputs
for maintenance in some regions. In 1965, the MWP issued the Water Tariff Collection and Use Management Methods for Reservoir Projects, which specified that the
management, maintenance, and renewal of water infrastructures and facilities with
benefits should be resolved by water tariff collection from beneficiaries, according
to the principles of self-financing, reasonable accumulation (profit), considering the
benefits of beneficiaries, and economic circumstance (ability to pay). However, the
tariff was very difficult to impose due to the poor ability to pay, and tariff revenue
was too low to cover costs because of low standards (Dept. of Water Management,
MWR 1991).
In the early 1980s, the water sector was criticized for being expensive yet ineffective after 1949 and required to reformulate the water pricing system (Central
Committee of CPC 1982). This assessment led to a requirement for the water sector to
summarize lessons learned and improve its operation and management by reforming
water investment and management systems (Qian 1981).
Following the 1981 CPC document, the State Council issued the Water Tariff
Formulation and Collection Management Methods for Hydraulic Engineering in
1985, aiming to guarantee the necessary revenues for the operation, management,
maintenance, and renewal of hydraulic engineering. This document defined cost
contents, tariff groups, and formulation methods. The water supply costs included
operation and management costs, also accounting for maintenance, depreciation,
and other expenditures. The agricultural tariff for grain production was calculated
according to water supply costs, excluding the depreciation from fixed assets by
farmer labor inputs, which for cash crops could be greater than supply costs. The
industrial tariff was formulated according to full costs and a 4–6% investment profit
rate. The tariff revenue was intended to cover the expenditures for the operation,
management, maintenance, and renewal of hydraulic engineering, while the surplus
could be used for development funding (State Council 1985). In most provinces, the
detailed implementation regulations were issued after the national method.
Although it is highly idealized, in theory, the 1985 Methods has solved the fundamental issues for a sustainable water pricing mechanism, such as clear cost grouping,
cost recovery, and differentiated tariff structure. At that time, however, the tariff
revenue was the administrative charge and was managed as the governmental out-ofbudget capital in 1992.
1 More importantly, water tariffs were not an issue of costs.
Considering China’s weak agricultural production and high inflation rate in the late
1980s, the collection standard had never met the requirements of the Methods and
the collection process faced many difficulties.
1 Questions and Answers to the Management Methods for Water Supply Tariffs from Hydraulic
Engineering, available at https://www.chinawater.net.cn/Journal/cwr/200416/16.htm.