6
urban wastewater treatment lags behind, with a
service coverage of 45.6% in 2004 (MOC 2005). Direct
investment demand for urban wastewater infrastructure
(including wastewater treatment, sewers, and sludge treatment)
in China is expected to be over 30 billion US dollars
between 2006 and 2010, to meet the objective of 60%
municipal wastewater to be treated. Accordingly, local
governments prefer direct private sector investment in and
building of new wastewater infrastructure, resulting in high
levels of the Greenfield modalities. In addition, the current
low wastewater treatment charges result in a preference for
Greenfield modes. In these modes, financing is based on
negotiated prices between the government and the private
sector and is less dependent to the user fee or charge;
drinking water supply costs are much better represented in
prices, making joint ventures more likely (Zhong and
others 2006).
Figure 2 categorizes public sector participation into five
groups, according to project capacity. The joint venture
approach leads the reform of water supply sector in all sizecategories,
while the Greenfield approach dominates in
wastewater sector, except for projects over 500,000 m3 per
day. This might also be related to the different financial
risks. Larger projects require much more direct capital
investment from the private sector, increasing the financial
risk for private investors and moving, then, rather toward
joint venture approaches. Furthermore, the full sale/divesture
approach occurred more in the field of water sector and
mainly in small projects in specific provinces (see Fig. 3).
And commercialization is more often found among larger
projects. This might be related to not only the larger capital
demands of bigger projects, but also huge labor redundancies
within such large projects. Existing large water
projects are traditionally run by state-owned enterprises
with high levels of superfluous workers. For private
investors it is often difficult to improve efficiency, because
government contracts often do not allow firing existing
workers following a commercialization process.
Figure 3 visualizes the provincial distribution of water
projects with private sector participation. At least 25
provinces have private sector participation experience in
water supply and 23 provinces in wastewater treatment.
The form of private sector participation is determined by
the level of development of water/wastewater infrastructure,
as well as the local economic, social and political
conditions. With richer markets, more open economic
policies and higher payment capacity of local residents, the
southern coastal (e.g., Guangdong and Fujian) and the
eastern coastal (e.g., Jiangsu) provinces witnessed high
levels of reform in their water sector. Over 60% of foreign
private sector investment in water supply projects and
about 50% foreign private sector investment in wastewater
projects were implemented in these coastal regions,
according to the MOC survey. In the meanwhile, the first
national BOT pilot project of Chengdu Water Supply
(Sichuan Province) has triggered a wave of private sector
participation in and around Sichuan Province (including
Chongqing and Yunnan). Furthermore, the special environmental
protection policies related to ‘‘The Three
Gorges’’ dam might have impelled private sector participation
in wastewater sector of Sichuan Province and
Chongqing.
As shown in Fig. 3, in water supply the joint venture
approach dominates in 19 provinces. In the wastewater
sector, Greenfield projects (including BOT and TOT)
dominate in 12 provinces. The commercialization of traditional
state-owned water enterprises was adopted more
widely in inland provinces (such as Gansu, Heilongjiang,
Jilin, Sichuan, Xinjiang, Yunnan) than in coastal provinces.
A joint venture approach for private sector involvement in
the wastewater sector was only adopted in provinces with
high wastewater treatment charges, such as Beijing, Fujian,
Jiangsu, Zhejiang, and Shanghai.
Three Case Studies of Public-Private Partnerships
The reported growing involvement of the private sector has
led to radical changes in China’s water management institutions.
In this section, we report on fieldwork of three case
studies with distinct modes of private sector involvement (a
joint venture, a concession, and a Greenfield contract) to
analyze in detail the new institutions and relationships
between actors in these constructions. During fieldwork in
Maanshan and Shanghai, we carried out face-to-face semistructured
interviews with relevant local officials (from the
construction authority, price authority, planning and reform
authority, state-owned assets administration authority, and
environmental protection bureau) and managers of water
service providers (water treatment plants/companies,
wastewater treatment plants/companies). In the performance
assessment project of Macau Water Company Ltd.,
the managers of relevant departments as well as the representative
of Macau Government were interviewed. In total,
around 30 interviews were held. While these three cases
represent different forms of private sector involvement,
they cannot be held representative. All three cases have
been assessed positively by the Chinese government and
independent researchers (see Fu and others 2006), making
them rather best practices than representative cases. But
together they illustrate the institutional transformations that
come along private sector involvement.
Joint Venture: Maanshan Water Supply
Maanshan City is an industrial, prefecture-level city of
1686 square kilometers, and a population of 1.24 million
(2004), of whom 46.8 per cent lives in urban areas.
According to the 2004 MOC statistics, 88.7 per cent of the
urban population has access to water supply. Water
resources are abundant in Maanshan City due to its
advantageous location on the south bank of the Yangtze
River and abundant annual rainfall (1062–1092 mm).
Maanshan Construction Commission (MASCC) is not only
the competent authority for water supply and wastewater
treatment and as such, plays a leading role in the water
sector reform. It is also, as a so-called ‘‘Big Construction
Commission,’’ the main governmental agency responsible
for urban planning, construction, and management (cf Wu
2003).
In 2002, following the call of Central Government and
Anhui Provincial Government, MASCC embarked upon
marketization reform in water and other public utilities
(e.g., gas and public transport), widely inviting business
actors to become active and invest. The director of MASCC,
Mr. Xu, argued that changing the current water
institutions and increasing service quality were the most
important reasons and objectives for embarking on marketization
in the water sector in Maanshan, rather than
bringing in nongovernmental capital (personal communication
2004). Marketization was expected to impel and
accelerate the reform of converting the old Maanshan
Water Supply Company (MASWSC, established in 1958 as
state-owned and state-subsidized company with total assets
of 4.37 million RMB in 2002, ca. 0.528 million US$ at the
exchange rate of 1US$ = 8.277RMB) into a new institutional
lay-out. After negotiating with several private
companies, MASCC first started — as a kind of trial — a
joint venture with Beijing Capital Group (BCG) for one
water supply plant (WTP, BCG owning 60% of shares).
This joint WTP sold purified water to MASWSC and
performed significantly better than other WTPs managed
by MASWSC alone. In 2004, MASCC expanded the joint
venture cooperation with BCG to all WTPs of Maanshan
City, in which BCG obtained a 60% share by bringing in 90
million RMB (ca. 10.875 million US$ at the exchange rate
of 1US$ = 8.276RMB). The new joint venture company
(MAS-BCWLC) was awarded a 30-year concession right.
Both BCG (private sector) and MASWSC (public sector)
bear responsibility of investment, operation, and maintenance
of the WTPs (excluding the pipe networks) and
service obligations (see Fig. 4). With respect to the pipe
networks, MAS-BCWLC manages and maintains the
existing (pre-2004) network by signing a lease contract
with MASWSC, which remained owner of the assets and
bears the financial obligations (debts). In the meanwhile,
MAS-BCWLC is requested to invest in new pipe infrastructure
in new development areas and in nonpiped
neighborhoods.
Within the new joint venture structure, the board of
MAS-BCWLC (4 members from BCG and 3 from WASWSC)
is the current decision-maker regarding planning
(within the objectives set by the municipal master planning),
investment and financing, partly replacing the
tradition of government decision structures. According to
the contract, the general manager of the joint venture
company comes alternately from MASWSC and BCG.
Taking into account the social dimensions of water provisioning,
the government claimed three key conditions in
the agreement with the concessionaire: first, the concessionaire
(MAS-BCWLC) must ensure sufficient and safe
water provision and the government can take over all
facilities without any indemnity if the concessionaire fails;
second, the concessionaire cannot change the public and
social nature of water and should include relevant social
responsibilities as governmental requirements (e.g.,
employing all personnel from the old water company,
providing free water for firefighting, reducing/subsidizing
water bills of the poor); third, the government controls the
water price.
In order to ensure high-quality water and service,
MASCC regulates the performance of MAS-BCWLC via
assessing annually the specified objectives approved by
both the MAS-BCWLC board and MASCC. For instance,
MAS-BCWLC was requested to achieve 12 key objectives
in 2004: (1) investment of 18 million RMB (ca. 2.175
million US$ at the exchange rate of 1US$ = 8.276RMB);
(2) selling 48 million cubic meter water or more and
reclaiming[90% of water bills; (3) fulfilling indicators of
water service quality (for instance, [99% of the control
points should reach the required water quality standards;
[98% control points should reach standards for water
pressure; a maximum of 30% water loss; burst pipes repairs
within maximum time limits); (4) fulfilling all MASCC
indicators for safe work; (5) construction of the main body
of the No.4 WTP and 25 kilometer new pipes; (6) fulfilling
client service indicators (for instance, 100% good client
service; [90% public satisfaction); (7) fulfilling the
reconstruction of Xiangshan Town water supply system;
(8) elaboration and submitting a water supply plan;
(9) achieving the relevant objectives of National Civilized
City Assessment System (which was proposed by Central
Cultural and Ideological Building Commission in 2004; it
includes 119 indicators); (10) submitting water supply
plans to Municipal People’s Congress and Municipal
People’s Political Consultative Conference; (11) responding
adequately to complaints and reporting this information
to the government; and (12) take anti-corruption measures.
After establishing the joint venture in 2002, the total
length of pipes and the volume of water provision have
increased (see Fig. 5) and MAS-BCWLC has been in
compliance with all requirements of the government,
according to interviews with local officials. From 2004 to
2005, MAS-BCWLC has invested about 90 million RMB
(ca. 10.875 million US$ at the exchange rate of 1US$ =
8.276RMB) for building new infrastructure, updating old
facilities and aged pipes, and establishing a customer service
system. In the meanwhile, the government has stopped
subsidizing WTPs after the involvement of BCG and the
joint venture even turned over about 18.7 million RMB (ca.
2.260 million US$ at the exchange rate of 1US$ =
8.276RMB; including 2 million RMB of the rent fee for
pipe networks, 4.7 million RMB of dividends, 7.7 million
RMB of corporate income tax, 3 million RMB of value
added tax, and 1.3 million RMB of the expense of other
taxation; the total taxation of 12 million RMB is about 25%
of the total turnover of MAS-BCWLC in 2004) to the local
government in 2004. The improved service quality of water
provision not only satisfied the consumers, but also resulted
in government (and the price public hearing; cf. Zhong and
Mol 2007) support for the first tariff reform after private
sector involvement in 2004. Maanshan Government
increased the water tariff from 0.83 to 1.08 RMB/m3 (ca.
0.10 to 0.13 US$/m3 at the exchange rate of 1US$ =
8.276RMB; rate for household consumers) and indirectly
subsidized MAS-BCWLC by moving the additional tax of
water provision (e.g., 0.05 RMB/m3 for household consumers)
to the income of the joint venture water company.
In 2004, the per capita annual income of urban households
of Maanshan was 10,189 RMB (ca. 1231.15 US$ at the
exchange rate of 1US$ = 8.276RMB), of which around
1.16% was spent on water services (calculated based on
daily household water use of 300 liters per capita).
Obviously, the involvement of BCG has brought in
additional capital to develop Maanshan’s water supply
sector. But more importantly it has changed the institutional
structure, improved the water service quality and quantity,
as well as reduced the governmental input in this field (see
Fig. 6). In this structure, the government benefits both from
the taxations and dividends of the joint venture company,
while transferring part of the financial, building, and operational
risks to the private sector. Following this model of
Maanshan City, BCG has successfully expanded its activities
to other cities, such as Huainan (Anhui Province), Baoji
(Shanxi Province), and Yuyao (Zhejiang Province).
However, this private sector involvement practice of
Maanshan is argued to have a (potential) political risk due
to the lack of a sound legal basis. In transitional China, in
particular, policies are perceived to be instable and insufficiently
law-based. Until now, details on measures and
rules to regulate private utility companies are still missing
in current national and Anhui provincial policy papers
(Maanshan has no legislation right). This is a common
problem in Chinese marketization practices in the water
sector, as argued by many lawyers and academics. For
instance, Shenyang water supply has experienced several
failed marketization practices due to the constantly
changing policies and decisions of the local government
during 1995–2000 (field survey 2004).
Concession Contract: Macau Water Supply
Macau is one of the two Special Administrative Regions of
China, together with Hong Kong. Administrated by Portugal
until 1999, it was the oldest European colony in
China, dating back to the 16th century. As a small territory
of 28 km2 on the southern coast of China, consisting of a
peninsula and the islands of Taipa and Coloane, it has a
population of 508,000 (2006).
Macau has a long history in the private provision of
drinking water, since the earliest Macau Water Company
Ltd. (MWC) was founded in 1932 as a full private capital
company invested by individuals. Three years later, MWC
was taken over by a British Electricity Lighting Company
for 10 years and since 1946 by the president of the Macau
Economic Department and other individual shareholders.
Due to lack of capital and advanced technologies, Macau
had an inadequate water supply service with poor water
quality and discontinuous water provision during the
1970s. In 1985, Macau Government, learning from the
concession management practices in the French water
sector, awarded a consortium of two private companies,
NWS Holding Limits (Hong Kong) and SUEZ Environment
(France), a 25-year concession contract. Macau
Government remained owner of the existing, pre-1985,
assets (plants and pipe networks), while the private Macau
Water Supply Ltd. (MWSL, the former MWC) bears
responsibilities for operations and maintenance of these
assets, as well as for new investments and service obligations
(see Fig. 7). This concession contract is not only the
first private sector participation construction in Chinese
water sector, but also the first contract that seems to end
with a positive result.
Distinct from the previous private owners, who had little
experience in the field of water provision, SUEZ (France)
brought in advanced water knowledge and technology.
According to the concession contract, MWSL must provide
high-quality water supply service, as well as bear several
obligations, such as planning, investment, construction,
operation, and maintenance of the infrastructure under the
supervision of Macao Government. In practice, Macau
Government has delegated tasks, responsibilities and
obligations to a very large degree to MWSL.
Coming to the end of the 25-year concession contract,
MWSL has fulfilled almost all terms of the initial contract. It
has, among others, considerably improved water service
quality by increasing service access and provision, decreased
the loss of water leakage (see Fig. 8), and kept water tariff
(corrected for inflation) at a stable level (see Fig. 9).
In the concession contract, the government did not
specify conditions and safeguards for the poor. But in
practice, MWSL not only reduced the water bill for lowincome,
disabled and other vulnerable groups. For instance,
MWSL has launched the ‘‘Elderly-In-Needs’’ water subsidy
program in 2001, which offers those aged over 55 free
water consumption of 5 m3 per month. Since May 2005 the
‘‘Water for All’’ program offers free water consumption to
other categories of people in needs, such as single-parent
families and disabled. But also in addition, it built two
potable ‘‘Wallace fountains’’ (a special public fountain
with potable water) in Macau, providing free potable water
to tourists and citizens. MWSL has also been active in
various social welfare and charity activities, providing total
donations of 2.08 million MOP (1MOP = 0.965RMB,
2007; ca. 0.26 million US$ at the exchange rate of 1US$ =
8.276RMB) during 2002–2005. During 1985–2005,
MSWL also charged discounted water tariffs for governmental
agencies, and handed in over 260 million MOP
(1MOP = 0.965RMB, 2007; ca. 32.56 million US$ at the
exchange rate of 1US$ = 8.276RMB) of taxes and about 56
million MOP (1MOP = 0.965RMB, 2007; ca. 7.012 million
US$ at the exchange rate of 1US$ = 8.276RMB) of concession
fees to the government.
In both Maanshan and Macau, the water tariff is the
main financial source for water companies, while governmental
subsidies have been abandoned. Accordingly,
whether the water tariff can cover the costs is significant. In
the case of Macau, the Macau Government owns the preconcession
infrastructure assets, which demands a smaller
first investment from the Consortium. The water tariff
could easily cover the cost of operation and maintenance
(and not the huge capital costs of existing assets). Unlike
the joint venture construction in the Maanshan case, Macau
Government leaves all financial responsibilities to the private
sector after the concession, and benefits from taxes,
concession fees and discounts on government water bills
(see Fig. 10). Due to the limited initial investments of the
private consortium, sharp water tariff increases were
avoided after privatization (often one of the major reasons
for public resistance and failed private sector participation
in other countries). The local government still owns part of
the infrastructure assets, in particular the pipes system,
with huge sunk-costs.
Fig. 8 Annual water demandprovision
and water loss in
Macau (1982–2005)
Macau is also an interesting case because of the unique
regulatory system, which includes the water quality regulator
(IACM), and a unique Government Delegate. IACM
is in charge of the water quality regulation, and monitors
and controls drinking water quality by random sampling
and analysis of over 70 water samples around Macau
everyday. The Government Delegate is not a government
official, but an individual working in another public utility
company and appointed by the government. Following
Macau laws, Mr. Lin Runzhong, the Government Delegate
for water supply, was appointed for a period of five years
by the Macau Government, and is not only the regulator of
MWSL, but also an important linkage between MWSL and
the government. He participates at all MWSL board
meetings and reports relevant information and documents
to the government. The Government Delegate decides
which information is considered relevant. He is also in
charge of assessing the performance of MWSL, and comments
on the five-year plans and tariff plans before MWSL
sends these to the government for approval. The Macau
government generally follows the comments and assessments
of the Government Delegate. In this sense, the
nongovernmental Government Delegate is defined a specified
role and powerful position in governing the water
sector. This institutional arrangement relates to the small
size of Macau Government, where only a limited state
capacity (in quantitative and qualitative terms) is available
for numerous public tasks. In conclusion, it can be argued
that after 1985 the Macau government has played a meager
role in the drinking water management.
Greenfield Contract: Shanghai Wastewater
The Greenfield contract (e.g., BOT, TOT) is the dominant
form of private sector participation in wastewater sector
reform throughout the country. Shanghai Zhuyuan No.1
WWTP project is one of the most famous Greenfield projects
in China. It is presently one of the largest WWTP in
China, with a treatment capacity of 1.7 million m3 per day
and an advanced primary treatment, serving an area of
107 km2 and about 23.5 million inhabitants. But it also has
become famous for the lowest service price: 0.22 RMB (ca.
0.0266US$ at the exchange rate of 1US$ = 8.276RMB) per
cubic meter treated wastewater.
In 2002, the Youlian Consortium (consisting of Youlian
Development Company with 45% shares, Huajin Information
Investment Ltd. Company with 40% shares, and
Shanghai Urban Construction Group with 15% shares) won
the open tender for Zhuyuan No.1 WWTP project by bidding
the lowest treatment costs. A Project Company
(Shanghai Zhuyuan Youlian No.1 Wastewater Treatment
Ltd. CO.) was established and awarded a 20-year concession
agreement by Shanghai Water Authority. A service
management contract was signed with Shanghai Sewerage
Company (a fully state-owned company administrated by
the government) including details of rights and obligations.
Two years later, Youlian Development Company withdrew
from this project by transferring the shares and obligations
to InterChina Holdings Group (see Fig. 11).
According to the agreement between Shanghai Water
Authority and the private company, Shanghai Water
Authority should minimize its interventions in the construction,
operation, and maintenance of WWTP and limit
them to safeguarding public health and safety. All conditions
and objectives with regard to water service quality are
defined in the service contract between Shanghai Sewerage
Company and the private company. Among others, the
private company has to install an on-line monitoring system
and is requested to invite an authorized third party for
regular monitoring (on indicators such as BOD5, CODcr,
SS, NH4-N, and phosphate). This should be paid by the
private company, while reporting to the Shanghai Sewerage
Company and should take place within five days.
Shanghai Sewerage Company may conduct random water
examination at any time. According to the local officials,
Shanghai Zhuyuan WWTP has fulfilled all responsibilities
and obligations required by the contract up till now,
including meeting the water quality standards.
In the case of Shanghai Zhuyuan Greenfield project, the
government has transferred its traditional responsibilities
of investment, construction, operation, and maintenance
(for the contract period) to the private Project Company,
accompanied by paying a service fee (see Fig. 12). Different
from the joint venture construction in Maanshan and
the concession construction in Macau, in which corporate
profits directly depend on the water tariff, the private
operator within a Greenfield contract is paid a service price
negotiated between the government and the private sector.
This service price depends on the investments and agreed
performance levels, rather than on the user fee level, and
which provides the private sector with the financial risks.
Accordingly, the low service price of Zhuyuan No.1
WWTP (which was 42% less than the projected costs by
government) presented in the public bidding, was argued to
have a close relation to earlier governmental input in this
project. Shanghai Water Assets Management Development
CO. Ltd., a fully public-owned company, was in charge of
the pre-phase design and invested about 30 million US
dollars in the fixed infrastructure of this project, while the
government provided the land free of charge to the operator.
Strictly speaking, Shanghai Zhuyuan No.1 WWTP
Greenfield project is a quasi-BOT project, due to the fact
that part of the investment comes from the government.
The experience of Shanghai is an example of full governmental
delegation of the daily management of WWTP
to the private sector, while financial support via subsidies
and preferential policies (e.g., land use) facilitate privatization
with low service prices. It is, however, too early to
fully assess the success of this project. Some BOT WWTP
projects in other cities have met problems following gaps
in the current national policy documents. For instance,
projects in Foshan (Guangdong Province) could not run
properly due to conflicts over current land use right. And
projects in Beijing were delayed during the financing
process because the domestic private actors met difficulties
in obtaining loans from domestic banks due to the lack of a
sound loan policy. The commercial banks couldn’t provide
long-term loans as required for BOT-types projects as their
credit policies are restricted for the private sector (Zhong
and Fu 2005), while the China Development Bank can
provide long-term loans for BOT-types projects only for a
limited number of clients (Chang and others 2006).
Conclusions
With the emergence and blossoming of various forms of
private sector involvement in the Chinese water sector, the
traditional structure of full governmental provision of
water supply and wastewater treatment has changed dramatically.
The analysis in this article has provided
evidence of the contribution of these new modes to
increased capital investment, and especially of more efficient
operations and improved service provision. In that
sense, the original goals of the Chinese government to
embark upon private sector involvement in water provisioning
and treatment have been met. However, the early
stage that most contracts are in, and the not yet crystallized
forms and modes of privatization, prevents us from drawing
any final conclusions on the impact of private sector
involvement in the Chinese water sector.
From the three casestudy projects with private sector
participation, we can draw some lessons for how to successfully
involve the private sector into the provision of
water services. Firstly, a balance between the water tariff
level, profits of investor and governmental subsidies is
required. As Hall and Lobina (2005) state, most practices
of water privatization fail due to public resistance following
sharp price increases and job losses. In China, this has
not (yet) been the case, due to large increases in efficiencies
and governmental support to fixed infrastructure
assets, reducing financial risk of the private sector and
limiting the need for large water tariff increases. At the
same time, the significant economic growth levels enables
local residents to cope with some tariff increases, the poor
and disadvantaged have been subsidized by the government,
job losses have been minimized following social
policies, and public hearings have contributed to higher
levels of legitimacy. This all contributed strongly to a
relatively smooth transformation of China’s water sector.
Secondly, the selection of the PPP form has a close
relation with the level of local water tariff. As illustrated by
this article, Greenfield projects appear to be applied when
tariffs are not sufficient, especially in the wastewater sector
(see also Zhong and others 2006), while Joint Venture
approaches are often used in cities with sufficiently high
water tariff, in particularly in the water supply sector.
Thirdly, it is crucial to accelerate the establishment of
systematic and comprehensive governmental regulatory
framework, as the current ad hoc, fragmented and diverse
regulatory system endangers efficiency in water service
development and certainty and stability for foreign investors.
Experiences in many countries have proven that
regulation is a key aspect in successful privatization in the
water sector and a competitive benchmarking system is
regarded as useful in an effective regulatory approach. In
late 2006, the MOC attempted to develop a Chinese water
supply benchmarking system, which is still ongoing.
However, the current private sector involvements in the
Chinese water sector still face many legal and regulatory
uncertainties. Too often local authorities experiment with
systems of governmental regulation and control, or — as in
Macau — seem to become marginalized. According to
interviews with local officials during our fieldwork, the
importance of establishing a workable regulatory and legal
system is essential. Guaranteeing sufficient and safe water
service to the public is jeopardized by the fact that governments
can no longer fully control the planning,
operation, and management of water services as before
private sector participation. This might only be signs of
uneasiness with the new water institutions and division of
tasks and responsibilities, but can also be the heralds of an
emerging debate on privatization in the Chinese water
sector.
Finally, but not least, it is important to identify the
differences in risk allocations in the water (service) market
between the public and private sectors within different
modes of PPP. As Table 1 and the three case-study projects
illuminate, with the various forms of privatization, the
government often transfers (smaller or larger parts of)
financial risks, building risks, and operation and maintenance
risks to the private sector. Meanwhile, in the end the
government can always take over all facilities without
paying an indemnity to the private sector if a concessionaire
fails in obtaining the goals as formulated by
governmental authorities, or some conflicts emerge in the
further policies (e.g., the terminated contracts that are
regarded as providing the private sector a fixed investment
return). In that sense, the still unstable legal base in transitional
China provides a major political and transfer risk
for private investors.
Acknowledgments The authors acknowledge the support from the
Ministry of Construction, the World Bank, and numerous local officials
and water companies interviewed during field work, 2004–2005.
Open Access This article is distributed under the terms of the
Creative Commons Attribution Noncommercial License which permits
any noncommercial use, distribution, and reproduction in any
medium, provided the original author(s) and source are credited.
service coverage of 45.6% in 2004 (MOC 2005). Direct
investment demand for urban wastewater infrastructure
(including wastewater treatment, sewers, and sludge treatment)
in China is expected to be over 30 billion US dollars
between 2006 and 2010, to meet the objective of 60%
municipal wastewater to be treated. Accordingly, local
governments prefer direct private sector investment in and
building of new wastewater infrastructure, resulting in high
levels of the Greenfield modalities. In addition, the current
low wastewater treatment charges result in a preference for
Greenfield modes. In these modes, financing is based on
negotiated prices between the government and the private
sector and is less dependent to the user fee or charge;
drinking water supply costs are much better represented in
prices, making joint ventures more likely (Zhong and
others 2006).
Figure 2 categorizes public sector participation into five
groups, according to project capacity. The joint venture
approach leads the reform of water supply sector in all sizecategories,
while the Greenfield approach dominates in
wastewater sector, except for projects over 500,000 m3 per
day. This might also be related to the different financial
risks. Larger projects require much more direct capital
investment from the private sector, increasing the financial
risk for private investors and moving, then, rather toward
joint venture approaches. Furthermore, the full sale/divesture
approach occurred more in the field of water sector and
mainly in small projects in specific provinces (see Fig. 3).
And commercialization is more often found among larger
projects. This might be related to not only the larger capital
demands of bigger projects, but also huge labor redundancies
within such large projects. Existing large water
projects are traditionally run by state-owned enterprises
with high levels of superfluous workers. For private
investors it is often difficult to improve efficiency, because
government contracts often do not allow firing existing
workers following a commercialization process.
Figure 3 visualizes the provincial distribution of water
projects with private sector participation. At least 25
provinces have private sector participation experience in
water supply and 23 provinces in wastewater treatment.
The form of private sector participation is determined by
the level of development of water/wastewater infrastructure,
as well as the local economic, social and political
conditions. With richer markets, more open economic
policies and higher payment capacity of local residents, the
southern coastal (e.g., Guangdong and Fujian) and the
eastern coastal (e.g., Jiangsu) provinces witnessed high
levels of reform in their water sector. Over 60% of foreign
private sector investment in water supply projects and
about 50% foreign private sector investment in wastewater
projects were implemented in these coastal regions,
according to the MOC survey. In the meanwhile, the first
national BOT pilot project of Chengdu Water Supply
(Sichuan Province) has triggered a wave of private sector
participation in and around Sichuan Province (including
Chongqing and Yunnan). Furthermore, the special environmental
protection policies related to ‘‘The Three
Gorges’’ dam might have impelled private sector participation
in wastewater sector of Sichuan Province and
Chongqing.
As shown in Fig. 3, in water supply the joint venture
approach dominates in 19 provinces. In the wastewater
sector, Greenfield projects (including BOT and TOT)
dominate in 12 provinces. The commercialization of traditional
state-owned water enterprises was adopted more
widely in inland provinces (such as Gansu, Heilongjiang,
Jilin, Sichuan, Xinjiang, Yunnan) than in coastal provinces.
A joint venture approach for private sector involvement in
the wastewater sector was only adopted in provinces with
high wastewater treatment charges, such as Beijing, Fujian,
Jiangsu, Zhejiang, and Shanghai.
Three Case Studies of Public-Private Partnerships
The reported growing involvement of the private sector has
led to radical changes in China’s water management institutions.
In this section, we report on fieldwork of three case
studies with distinct modes of private sector involvement (a
joint venture, a concession, and a Greenfield contract) to
analyze in detail the new institutions and relationships
between actors in these constructions. During fieldwork in
Maanshan and Shanghai, we carried out face-to-face semistructured
interviews with relevant local officials (from the
construction authority, price authority, planning and reform
authority, state-owned assets administration authority, and
environmental protection bureau) and managers of water
service providers (water treatment plants/companies,
wastewater treatment plants/companies). In the performance
assessment project of Macau Water Company Ltd.,
the managers of relevant departments as well as the representative
of Macau Government were interviewed. In total,
around 30 interviews were held. While these three cases
represent different forms of private sector involvement,
they cannot be held representative. All three cases have
been assessed positively by the Chinese government and
independent researchers (see Fu and others 2006), making
them rather best practices than representative cases. But
together they illustrate the institutional transformations that
come along private sector involvement.
Joint Venture: Maanshan Water Supply
Maanshan City is an industrial, prefecture-level city of
1686 square kilometers, and a population of 1.24 million
(2004), of whom 46.8 per cent lives in urban areas.
According to the 2004 MOC statistics, 88.7 per cent of the
urban population has access to water supply. Water
resources are abundant in Maanshan City due to its
advantageous location on the south bank of the Yangtze
River and abundant annual rainfall (1062–1092 mm).
Maanshan Construction Commission (MASCC) is not only
the competent authority for water supply and wastewater
treatment and as such, plays a leading role in the water
sector reform. It is also, as a so-called ‘‘Big Construction
Commission,’’ the main governmental agency responsible
for urban planning, construction, and management (cf Wu
2003).
In 2002, following the call of Central Government and
Anhui Provincial Government, MASCC embarked upon
marketization reform in water and other public utilities
(e.g., gas and public transport), widely inviting business
actors to become active and invest. The director of MASCC,
Mr. Xu, argued that changing the current water
institutions and increasing service quality were the most
important reasons and objectives for embarking on marketization
in the water sector in Maanshan, rather than
bringing in nongovernmental capital (personal communication
2004). Marketization was expected to impel and
accelerate the reform of converting the old Maanshan
Water Supply Company (MASWSC, established in 1958 as
state-owned and state-subsidized company with total assets
of 4.37 million RMB in 2002, ca. 0.528 million US$ at the
exchange rate of 1US$ = 8.277RMB) into a new institutional
lay-out. After negotiating with several private
companies, MASCC first started — as a kind of trial — a
joint venture with Beijing Capital Group (BCG) for one
water supply plant (WTP, BCG owning 60% of shares).
This joint WTP sold purified water to MASWSC and
performed significantly better than other WTPs managed
by MASWSC alone. In 2004, MASCC expanded the joint
venture cooperation with BCG to all WTPs of Maanshan
City, in which BCG obtained a 60% share by bringing in 90
million RMB (ca. 10.875 million US$ at the exchange rate
of 1US$ = 8.276RMB). The new joint venture company
(MAS-BCWLC) was awarded a 30-year concession right.
Both BCG (private sector) and MASWSC (public sector)
bear responsibility of investment, operation, and maintenance
of the WTPs (excluding the pipe networks) and
service obligations (see Fig. 4). With respect to the pipe
networks, MAS-BCWLC manages and maintains the
existing (pre-2004) network by signing a lease contract
with MASWSC, which remained owner of the assets and
bears the financial obligations (debts). In the meanwhile,
MAS-BCWLC is requested to invest in new pipe infrastructure
in new development areas and in nonpiped
neighborhoods.
Within the new joint venture structure, the board of
MAS-BCWLC (4 members from BCG and 3 from WASWSC)
is the current decision-maker regarding planning
(within the objectives set by the municipal master planning),
investment and financing, partly replacing the
tradition of government decision structures. According to
the contract, the general manager of the joint venture
company comes alternately from MASWSC and BCG.
Taking into account the social dimensions of water provisioning,
the government claimed three key conditions in
the agreement with the concessionaire: first, the concessionaire
(MAS-BCWLC) must ensure sufficient and safe
water provision and the government can take over all
facilities without any indemnity if the concessionaire fails;
second, the concessionaire cannot change the public and
social nature of water and should include relevant social
responsibilities as governmental requirements (e.g.,
employing all personnel from the old water company,
providing free water for firefighting, reducing/subsidizing
water bills of the poor); third, the government controls the
water price.
In order to ensure high-quality water and service,
MASCC regulates the performance of MAS-BCWLC via
assessing annually the specified objectives approved by
both the MAS-BCWLC board and MASCC. For instance,
MAS-BCWLC was requested to achieve 12 key objectives
in 2004: (1) investment of 18 million RMB (ca. 2.175
million US$ at the exchange rate of 1US$ = 8.276RMB);
(2) selling 48 million cubic meter water or more and
reclaiming[90% of water bills; (3) fulfilling indicators of
water service quality (for instance, [99% of the control
points should reach the required water quality standards;
[98% control points should reach standards for water
pressure; a maximum of 30% water loss; burst pipes repairs
within maximum time limits); (4) fulfilling all MASCC
indicators for safe work; (5) construction of the main body
of the No.4 WTP and 25 kilometer new pipes; (6) fulfilling
client service indicators (for instance, 100% good client
service; [90% public satisfaction); (7) fulfilling the
reconstruction of Xiangshan Town water supply system;
(8) elaboration and submitting a water supply plan;
(9) achieving the relevant objectives of National Civilized
City Assessment System (which was proposed by Central
Cultural and Ideological Building Commission in 2004; it
includes 119 indicators); (10) submitting water supply
plans to Municipal People’s Congress and Municipal
People’s Political Consultative Conference; (11) responding
adequately to complaints and reporting this information
to the government; and (12) take anti-corruption measures.
After establishing the joint venture in 2002, the total
length of pipes and the volume of water provision have
increased (see Fig. 5) and MAS-BCWLC has been in
compliance with all requirements of the government,
according to interviews with local officials. From 2004 to
2005, MAS-BCWLC has invested about 90 million RMB
(ca. 10.875 million US$ at the exchange rate of 1US$ =
8.276RMB) for building new infrastructure, updating old
facilities and aged pipes, and establishing a customer service
system. In the meanwhile, the government has stopped
subsidizing WTPs after the involvement of BCG and the
joint venture even turned over about 18.7 million RMB (ca.
2.260 million US$ at the exchange rate of 1US$ =
8.276RMB; including 2 million RMB of the rent fee for
pipe networks, 4.7 million RMB of dividends, 7.7 million
RMB of corporate income tax, 3 million RMB of value
added tax, and 1.3 million RMB of the expense of other
taxation; the total taxation of 12 million RMB is about 25%
of the total turnover of MAS-BCWLC in 2004) to the local
government in 2004. The improved service quality of water
provision not only satisfied the consumers, but also resulted
in government (and the price public hearing; cf. Zhong and
Mol 2007) support for the first tariff reform after private
sector involvement in 2004. Maanshan Government
increased the water tariff from 0.83 to 1.08 RMB/m3 (ca.
0.10 to 0.13 US$/m3 at the exchange rate of 1US$ =
8.276RMB; rate for household consumers) and indirectly
subsidized MAS-BCWLC by moving the additional tax of
water provision (e.g., 0.05 RMB/m3 for household consumers)
to the income of the joint venture water company.
In 2004, the per capita annual income of urban households
of Maanshan was 10,189 RMB (ca. 1231.15 US$ at the
exchange rate of 1US$ = 8.276RMB), of which around
1.16% was spent on water services (calculated based on
daily household water use of 300 liters per capita).
Obviously, the involvement of BCG has brought in
additional capital to develop Maanshan’s water supply
sector. But more importantly it has changed the institutional
structure, improved the water service quality and quantity,
as well as reduced the governmental input in this field (see
Fig. 6). In this structure, the government benefits both from
the taxations and dividends of the joint venture company,
while transferring part of the financial, building, and operational
risks to the private sector. Following this model of
Maanshan City, BCG has successfully expanded its activities
to other cities, such as Huainan (Anhui Province), Baoji
(Shanxi Province), and Yuyao (Zhejiang Province).
However, this private sector involvement practice of
Maanshan is argued to have a (potential) political risk due
to the lack of a sound legal basis. In transitional China, in
particular, policies are perceived to be instable and insufficiently
law-based. Until now, details on measures and
rules to regulate private utility companies are still missing
in current national and Anhui provincial policy papers
(Maanshan has no legislation right). This is a common
problem in Chinese marketization practices in the water
sector, as argued by many lawyers and academics. For
instance, Shenyang water supply has experienced several
failed marketization practices due to the constantly
changing policies and decisions of the local government
during 1995–2000 (field survey 2004).
Concession Contract: Macau Water Supply
Macau is one of the two Special Administrative Regions of
China, together with Hong Kong. Administrated by Portugal
until 1999, it was the oldest European colony in
China, dating back to the 16th century. As a small territory
of 28 km2 on the southern coast of China, consisting of a
peninsula and the islands of Taipa and Coloane, it has a
population of 508,000 (2006).
Macau has a long history in the private provision of
drinking water, since the earliest Macau Water Company
Ltd. (MWC) was founded in 1932 as a full private capital
company invested by individuals. Three years later, MWC
was taken over by a British Electricity Lighting Company
for 10 years and since 1946 by the president of the Macau
Economic Department and other individual shareholders.
Due to lack of capital and advanced technologies, Macau
had an inadequate water supply service with poor water
quality and discontinuous water provision during the
1970s. In 1985, Macau Government, learning from the
concession management practices in the French water
sector, awarded a consortium of two private companies,
NWS Holding Limits (Hong Kong) and SUEZ Environment
(France), a 25-year concession contract. Macau
Government remained owner of the existing, pre-1985,
assets (plants and pipe networks), while the private Macau
Water Supply Ltd. (MWSL, the former MWC) bears
responsibilities for operations and maintenance of these
assets, as well as for new investments and service obligations
(see Fig. 7). This concession contract is not only the
first private sector participation construction in Chinese
water sector, but also the first contract that seems to end
with a positive result.
Distinct from the previous private owners, who had little
experience in the field of water provision, SUEZ (France)
brought in advanced water knowledge and technology.
According to the concession contract, MWSL must provide
high-quality water supply service, as well as bear several
obligations, such as planning, investment, construction,
operation, and maintenance of the infrastructure under the
supervision of Macao Government. In practice, Macau
Government has delegated tasks, responsibilities and
obligations to a very large degree to MWSL.
Coming to the end of the 25-year concession contract,
MWSL has fulfilled almost all terms of the initial contract. It
has, among others, considerably improved water service
quality by increasing service access and provision, decreased
the loss of water leakage (see Fig. 8), and kept water tariff
(corrected for inflation) at a stable level (see Fig. 9).
In the concession contract, the government did not
specify conditions and safeguards for the poor. But in
practice, MWSL not only reduced the water bill for lowincome,
disabled and other vulnerable groups. For instance,
MWSL has launched the ‘‘Elderly-In-Needs’’ water subsidy
program in 2001, which offers those aged over 55 free
water consumption of 5 m3 per month. Since May 2005 the
‘‘Water for All’’ program offers free water consumption to
other categories of people in needs, such as single-parent
families and disabled. But also in addition, it built two
potable ‘‘Wallace fountains’’ (a special public fountain
with potable water) in Macau, providing free potable water
to tourists and citizens. MWSL has also been active in
various social welfare and charity activities, providing total
donations of 2.08 million MOP (1MOP = 0.965RMB,
2007; ca. 0.26 million US$ at the exchange rate of 1US$ =
8.276RMB) during 2002–2005. During 1985–2005,
MSWL also charged discounted water tariffs for governmental
agencies, and handed in over 260 million MOP
(1MOP = 0.965RMB, 2007; ca. 32.56 million US$ at the
exchange rate of 1US$ = 8.276RMB) of taxes and about 56
million MOP (1MOP = 0.965RMB, 2007; ca. 7.012 million
US$ at the exchange rate of 1US$ = 8.276RMB) of concession
fees to the government.
In both Maanshan and Macau, the water tariff is the
main financial source for water companies, while governmental
subsidies have been abandoned. Accordingly,
whether the water tariff can cover the costs is significant. In
the case of Macau, the Macau Government owns the preconcession
infrastructure assets, which demands a smaller
first investment from the Consortium. The water tariff
could easily cover the cost of operation and maintenance
(and not the huge capital costs of existing assets). Unlike
the joint venture construction in the Maanshan case, Macau
Government leaves all financial responsibilities to the private
sector after the concession, and benefits from taxes,
concession fees and discounts on government water bills
(see Fig. 10). Due to the limited initial investments of the
private consortium, sharp water tariff increases were
avoided after privatization (often one of the major reasons
for public resistance and failed private sector participation
in other countries). The local government still owns part of
the infrastructure assets, in particular the pipes system,
with huge sunk-costs.
Fig. 8 Annual water demandprovision
and water loss in
Macau (1982–2005)
Macau is also an interesting case because of the unique
regulatory system, which includes the water quality regulator
(IACM), and a unique Government Delegate. IACM
is in charge of the water quality regulation, and monitors
and controls drinking water quality by random sampling
and analysis of over 70 water samples around Macau
everyday. The Government Delegate is not a government
official, but an individual working in another public utility
company and appointed by the government. Following
Macau laws, Mr. Lin Runzhong, the Government Delegate
for water supply, was appointed for a period of five years
by the Macau Government, and is not only the regulator of
MWSL, but also an important linkage between MWSL and
the government. He participates at all MWSL board
meetings and reports relevant information and documents
to the government. The Government Delegate decides
which information is considered relevant. He is also in
charge of assessing the performance of MWSL, and comments
on the five-year plans and tariff plans before MWSL
sends these to the government for approval. The Macau
government generally follows the comments and assessments
of the Government Delegate. In this sense, the
nongovernmental Government Delegate is defined a specified
role and powerful position in governing the water
sector. This institutional arrangement relates to the small
size of Macau Government, where only a limited state
capacity (in quantitative and qualitative terms) is available
for numerous public tasks. In conclusion, it can be argued
that after 1985 the Macau government has played a meager
role in the drinking water management.
Greenfield Contract: Shanghai Wastewater
The Greenfield contract (e.g., BOT, TOT) is the dominant
form of private sector participation in wastewater sector
reform throughout the country. Shanghai Zhuyuan No.1
WWTP project is one of the most famous Greenfield projects
in China. It is presently one of the largest WWTP in
China, with a treatment capacity of 1.7 million m3 per day
and an advanced primary treatment, serving an area of
107 km2 and about 23.5 million inhabitants. But it also has
become famous for the lowest service price: 0.22 RMB (ca.
0.0266US$ at the exchange rate of 1US$ = 8.276RMB) per
cubic meter treated wastewater.
In 2002, the Youlian Consortium (consisting of Youlian
Development Company with 45% shares, Huajin Information
Investment Ltd. Company with 40% shares, and
Shanghai Urban Construction Group with 15% shares) won
the open tender for Zhuyuan No.1 WWTP project by bidding
the lowest treatment costs. A Project Company
(Shanghai Zhuyuan Youlian No.1 Wastewater Treatment
Ltd. CO.) was established and awarded a 20-year concession
agreement by Shanghai Water Authority. A service
management contract was signed with Shanghai Sewerage
Company (a fully state-owned company administrated by
the government) including details of rights and obligations.
Two years later, Youlian Development Company withdrew
from this project by transferring the shares and obligations
to InterChina Holdings Group (see Fig. 11).
According to the agreement between Shanghai Water
Authority and the private company, Shanghai Water
Authority should minimize its interventions in the construction,
operation, and maintenance of WWTP and limit
them to safeguarding public health and safety. All conditions
and objectives with regard to water service quality are
defined in the service contract between Shanghai Sewerage
Company and the private company. Among others, the
private company has to install an on-line monitoring system
and is requested to invite an authorized third party for
regular monitoring (on indicators such as BOD5, CODcr,
SS, NH4-N, and phosphate). This should be paid by the
private company, while reporting to the Shanghai Sewerage
Company and should take place within five days.
Shanghai Sewerage Company may conduct random water
examination at any time. According to the local officials,
Shanghai Zhuyuan WWTP has fulfilled all responsibilities
and obligations required by the contract up till now,
including meeting the water quality standards.
In the case of Shanghai Zhuyuan Greenfield project, the
government has transferred its traditional responsibilities
of investment, construction, operation, and maintenance
(for the contract period) to the private Project Company,
accompanied by paying a service fee (see Fig. 12). Different
from the joint venture construction in Maanshan and
the concession construction in Macau, in which corporate
profits directly depend on the water tariff, the private
operator within a Greenfield contract is paid a service price
negotiated between the government and the private sector.
This service price depends on the investments and agreed
performance levels, rather than on the user fee level, and
which provides the private sector with the financial risks.
Accordingly, the low service price of Zhuyuan No.1
WWTP (which was 42% less than the projected costs by
government) presented in the public bidding, was argued to
have a close relation to earlier governmental input in this
project. Shanghai Water Assets Management Development
CO. Ltd., a fully public-owned company, was in charge of
the pre-phase design and invested about 30 million US
dollars in the fixed infrastructure of this project, while the
government provided the land free of charge to the operator.
Strictly speaking, Shanghai Zhuyuan No.1 WWTP
Greenfield project is a quasi-BOT project, due to the fact
that part of the investment comes from the government.
The experience of Shanghai is an example of full governmental
delegation of the daily management of WWTP
to the private sector, while financial support via subsidies
and preferential policies (e.g., land use) facilitate privatization
with low service prices. It is, however, too early to
fully assess the success of this project. Some BOT WWTP
projects in other cities have met problems following gaps
in the current national policy documents. For instance,
projects in Foshan (Guangdong Province) could not run
properly due to conflicts over current land use right. And
projects in Beijing were delayed during the financing
process because the domestic private actors met difficulties
in obtaining loans from domestic banks due to the lack of a
sound loan policy. The commercial banks couldn’t provide
long-term loans as required for BOT-types projects as their
credit policies are restricted for the private sector (Zhong
and Fu 2005), while the China Development Bank can
provide long-term loans for BOT-types projects only for a
limited number of clients (Chang and others 2006).
Conclusions
With the emergence and blossoming of various forms of
private sector involvement in the Chinese water sector, the
traditional structure of full governmental provision of
water supply and wastewater treatment has changed dramatically.
The analysis in this article has provided
evidence of the contribution of these new modes to
increased capital investment, and especially of more efficient
operations and improved service provision. In that
sense, the original goals of the Chinese government to
embark upon private sector involvement in water provisioning
and treatment have been met. However, the early
stage that most contracts are in, and the not yet crystallized
forms and modes of privatization, prevents us from drawing
any final conclusions on the impact of private sector
involvement in the Chinese water sector.
From the three casestudy projects with private sector
participation, we can draw some lessons for how to successfully
involve the private sector into the provision of
water services. Firstly, a balance between the water tariff
level, profits of investor and governmental subsidies is
required. As Hall and Lobina (2005) state, most practices
of water privatization fail due to public resistance following
sharp price increases and job losses. In China, this has
not (yet) been the case, due to large increases in efficiencies
and governmental support to fixed infrastructure
assets, reducing financial risk of the private sector and
limiting the need for large water tariff increases. At the
same time, the significant economic growth levels enables
local residents to cope with some tariff increases, the poor
and disadvantaged have been subsidized by the government,
job losses have been minimized following social
policies, and public hearings have contributed to higher
levels of legitimacy. This all contributed strongly to a
relatively smooth transformation of China’s water sector.
Secondly, the selection of the PPP form has a close
relation with the level of local water tariff. As illustrated by
this article, Greenfield projects appear to be applied when
tariffs are not sufficient, especially in the wastewater sector
(see also Zhong and others 2006), while Joint Venture
approaches are often used in cities with sufficiently high
water tariff, in particularly in the water supply sector.
Thirdly, it is crucial to accelerate the establishment of
systematic and comprehensive governmental regulatory
framework, as the current ad hoc, fragmented and diverse
regulatory system endangers efficiency in water service
development and certainty and stability for foreign investors.
Experiences in many countries have proven that
regulation is a key aspect in successful privatization in the
water sector and a competitive benchmarking system is
regarded as useful in an effective regulatory approach. In
late 2006, the MOC attempted to develop a Chinese water
supply benchmarking system, which is still ongoing.
However, the current private sector involvements in the
Chinese water sector still face many legal and regulatory
uncertainties. Too often local authorities experiment with
systems of governmental regulation and control, or — as in
Macau — seem to become marginalized. According to
interviews with local officials during our fieldwork, the
importance of establishing a workable regulatory and legal
system is essential. Guaranteeing sufficient and safe water
service to the public is jeopardized by the fact that governments
can no longer fully control the planning,
operation, and management of water services as before
private sector participation. This might only be signs of
uneasiness with the new water institutions and division of
tasks and responsibilities, but can also be the heralds of an
emerging debate on privatization in the Chinese water
sector.
Finally, but not least, it is important to identify the
differences in risk allocations in the water (service) market
between the public and private sectors within different
modes of PPP. As Table 1 and the three case-study projects
illuminate, with the various forms of privatization, the
government often transfers (smaller or larger parts of)
financial risks, building risks, and operation and maintenance
risks to the private sector. Meanwhile, in the end the
government can always take over all facilities without
paying an indemnity to the private sector if a concessionaire
fails in obtaining the goals as formulated by
governmental authorities, or some conflicts emerge in the
further policies (e.g., the terminated contracts that are
regarded as providing the private sector a fixed investment
return). In that sense, the still unstable legal base in transitional
China provides a major political and transfer risk
for private investors.
Acknowledgments The authors acknowledge the support from the
Ministry of Construction, the World Bank, and numerous local officials
and water companies interviewed during field work, 2004–2005.
Open Access This article is distributed under the terms of the
Creative Commons Attribution Noncommercial License which permits
any noncommercial use, distribution, and reproduction in any
medium, provided the original author(s) and source are credited.
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