Research on Water Rights Trading System: A Case Study of China

Author: Shen Manhong
Publisher:
Publish Date: 2006-07-01
Features: The core of water resource allocation system innovation lies in the reform of water rights system, and the core of the water rights system reform is to establish a water rights trading system. Addressing China's water supply and demand imbalance is a major contemporary issue. With the deepening of market-oriented reforms, China has emerged a series of typical cases of water rights system innovation that are worth studying. Therefore, this paper conducts a case study on the water rights trading system based on China's case analysis. Through the "Equal Water Allocation System" case in the Heihe River Basin, it demonstrates that the initial allocation of regional water rights in China relies on the power of higher-level governments rather than market mechanisms. The initial allocation of regional water rights by higher-level governments is often determined by their own preferences and requires coercion for implementation. Once the initial water rights are clearly defined, water rights trading will eventually emerge, improving the efficiency of water rights allocation. The arrangement of regional water rights systems may utilize "self-governance" mechanisms, but it depends on the size of the region or basin. In small regions or small basins, neither government nor market may be necessary, but in large regions or large basins, government leadership is essential. The water rights trading case between Dongyang and Yiwu validates the conclusion that the reform and evolution of China's water rights trading system follow a "middle-out" model driven by the government, especially regional governments. In other words, water rights system innovation is a government-driven reform model. This is because intergovernmental water rights trading is also a rational choice to achieve high returns with low costs. Water rights trading under unclear property rights cannot be separated from government promotion, and demand pull is the main driver of intergovernmental regional water rights trading.