Private Sector Participation and Performance of Urban Water Utilities in the People's Republic of China

Publication | December 2010

In a study of more than 200 urban water utilities of Chinese cities from 1998 to 2007, utility’s profitability and city’s road infrastructure help attract or keep private investors to the urban water sector.

In the early 1990s, the People's Republic of China opened its urban water sector to nonstate capital to help meet increasing urban water demand under severe water resource constraints. By 2007, more than 30% of urban water utilities had attracted private sector participation (PSP).

To understand the factors that drive PSP in urban water supply, and to answer the key policy questions whether PSP has boosted investment and improved the efficiency in water supply, authors assembled and analyzed a unique dataset consisting of more than 200 urban water utilities covering 1998-2007. Estimations indicate that, except for the utility's profitability and urban road infrastructure in the prior year, the characteristics of the utility or city were not strong drivers of PSP. One interpretation is that private investors participating in this newly opened sector were less concerned with short-term factors.

For utility performance, this paper finds that PSP has reduced employment, has lowered managerial expenses relative to sales revenues, and has increased profitability significantly, in both the economic and statistical sense. PSP has positively affected utilities in other ways, although the estimates are not statistically significant. Further analysis indicates that most of the changes occurred in utilities with private shareholders in the majority rather than the minority.


  • Abstract
  • Introduction
  • Literature Review
  • Data and Variables
  • Private Sector Participation in Urban Water Utilities and Its Drivers
  • Econometric Models
  • Impact of Private Sector Participation on Water Utility Performance
  • Conclusions
  • Appendix
  • References