7.7 Some Issues
169
7.7.3 Water Price Burden
In China, almost all decision-makers and researchers conclude that the current water
price is too low and does not facilitate water resources allocation, protection, and
saving. Taking Beijing as an example, the share of expenditure on water and wastewater service as a proportion of urban disposable income was between 0.62 and 1.23%
during 2003–2012. Compared to 0.2–1.2%, with most countries below 0.8%, in the
OECD countries in 2008, the water tariff burden in China is not lower internationally
(OECD 2010). At the same time, given the high abstraction fee and relatively lower
water quality (compared to developed countries) in most Chinese cities, the water
tariff is not especially low in China. That said, under the affordability between 2.5
and 3.0%, adequate space is available for tariff regulation.
4
7.8 Suggestions
In consideration of the experiences and lessons from water pricing reform in the past
30 years and more, further reforms are required in the following aspects.
Formulation of water pricing mechanism
While China began attempting to develop a sustainable water pricing mechanism
as early as in 2000, it should be recognized that this mechanism has not yet been
devised. The water pricing mechanism should be established as soon as possible,
however, to avoid the kinds of temporary and periodic pricing reform promoted by
various policy guidance documents after 2000.
The mechanism must clarify water price regulation conditions and periods to
develop the clear rules and anticipation required for price change. Pricing regulation
has been impacted by many internal and external factors in China, creating barriers
to the formulation and implementation of the pricing mechanism. Furthermore, the
mechanism should consist of clear and standardized price regulation procedures,
while also ensuring the responsibility of the organizations.
Additionally, the mechanism should develop an information disclosure procedure,
since public information disclosure is the basis for formulating such a pricing mechanism. However, there is a significant information asymmetry in the water sector,
particularly in enterprise information. Detailed and clear costs and expenditures data
have not yet been made available to the public.
More importantly, the water pricing formulation mechanism should balance the
respective interests of service providers and users. Under general pricing principles, water pricing reform should encourage enterprises to improve efficiency and
service quality and incentivize users to save water. While the regulatory agency
4 https://www.pacinst.org/wp-content/uploads/2013/01/water-rates-affordability.pdf.
169
7.7.3 Water Price Burden
In China, almost all decision-makers and researchers conclude that the current water
price is too low and does not facilitate water resources allocation, protection, and
saving. Taking Beijing as an example, the share of expenditure on water and wastewater service as a proportion of urban disposable income was between 0.62 and 1.23%
during 2003–2012. Compared to 0.2–1.2%, with most countries below 0.8%, in the
OECD countries in 2008, the water tariff burden in China is not lower internationally
(OECD 2010). At the same time, given the high abstraction fee and relatively lower
water quality (compared to developed countries) in most Chinese cities, the water
tariff is not especially low in China. That said, under the affordability between 2.5
and 3.0%, adequate space is available for tariff regulation.
4
7.8 Suggestions
In consideration of the experiences and lessons from water pricing reform in the past
30 years and more, further reforms are required in the following aspects.
Formulation of water pricing mechanism
While China began attempting to develop a sustainable water pricing mechanism
as early as in 2000, it should be recognized that this mechanism has not yet been
devised. The water pricing mechanism should be established as soon as possible,
however, to avoid the kinds of temporary and periodic pricing reform promoted by
various policy guidance documents after 2000.
The mechanism must clarify water price regulation conditions and periods to
develop the clear rules and anticipation required for price change. Pricing regulation
has been impacted by many internal and external factors in China, creating barriers
to the formulation and implementation of the pricing mechanism. Furthermore, the
mechanism should consist of clear and standardized price regulation procedures,
while also ensuring the responsibility of the organizations.
Additionally, the mechanism should develop an information disclosure procedure,
since public information disclosure is the basis for formulating such a pricing mechanism. However, there is a significant information asymmetry in the water sector,
particularly in enterprise information. Detailed and clear costs and expenditures data
have not yet been made available to the public.
More importantly, the water pricing formulation mechanism should balance the
respective interests of service providers and users. Under general pricing principles, water pricing reform should encourage enterprises to improve efficiency and
service quality and incentivize users to save water. While the regulatory agency
4 https://www.pacinst.org/wp-content/uploads/2013/01/water-rates-affordability.pdf.