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China’s economic growth during the past three decades has been most impressive. This rapid growth, however, has been achieved at considerable environmental costs, one of which is serious water pollution. With rise in living standards, people have become more aware of the impact of water pollution on their quality of life. In the area of water management, the priority of the Chinese government should be on how to provide China’s 1.35 billion people with clean and safe water, that is, water which could be drunk from the tap without any adverse health impacts.
   My colleagues and I have regularly visited China, and we have met few families that drink water from the tap. The distrust of the quality of tap water can be seen by the sale of bottled water. In 2014, China was expected to overtake the United States as the largest market for bottled water in the world. Although it accounts for nearly one-fifth of the global population, China has only about 7 percent of the world’s freshwater. This means to ensure adequate water for drinking, industrial, agricultural and energy-related uses, China needs to adopt a new mindset to manage its water, which is becoming increasingly more polluted and scarce.
   What the country needs is a revolution in terms of water governance, which means that increasing supply is not the automatic answer to an increase in demand. One important option is to adjust water price, which is too cheap at present. Consequently, households and industries use too much water. This is also the case for agriculture, which is so far the largest user of water. Neither municipalities nor industries have historically considered extensive treatment and reuse of waste water.
   At present, water expenditure of an average Chinese household is about 0.5 percent of disposable income. This is one of the lowest in the world. The average water price for 25 major Chinese cities is only US$0.46 per cubic meter, compared to a global average of $2.03 per cubic meter. The Chinese government has called for more efficient use of water, and promised the market would play a greater role in setting prices. Accordingly, by 2015, there will be a three-tiered pricing structure in all cities and towns based on actual water use. The top 5 percent of water users will pay three times the base price. The next 15 percent will pay 1.5 times the base price. However, 80 percent will continue to pay the same cheap price.
   While the new pricing structure is a step in the right direction, it is not enough to manage demand. The water price has to increase significantly to manage demand. Our general view is that water price should be around 1.5 percent of disposable household incomes. Only those households where water use exceeds their income level should receive targeted subsidies. Within the next 5 to 10 years, the objective should be to ensure all cities with a population above a certain level receive clean water which can be drunk safely from the tap. At the same time, public awareness campaigns, such as those in Singapore, should be considered. These campaigns are designed to draw public attention to the importance of water to people’s quality of life and the country’s continuous economic development. People should be made aware that the cost of substandard water supply and waste water treatment is probably around 2.5 to 3 percent of the country’s GDP.
   With cheap pricing, as has been the case historically, there can only be limited water conservation. This has also stopped companies, public or private, from carrying out badly needed upgrades and proper and regular maintenance of their water supplying systems and applying the latest technology to improve water management. Water pricing is one of the most important tools available to ensure every Chinese has access to safe water in the foreseeable future. However, like any tool, water pricing has to be used sensitively and properly.