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Interesting article on water in China, and global water prices (see chart).

JULY 31, 2009.China Cities Raise Water Price in Bid to Conserve
Tariffs Remain Low by Global Standards

By ANDREW BATSON


Reuters
BEIJING -- Cities across China are raising the price of water, in moves that try to balance the need to conserve an increasingly scarce resource with the effects on a public used to low fees.

The city government of Luoyang, in central Henan province, prepared to hold a public meeting Friday to argue for a proposed water-price increase of 40% to 48%. Water prices in the dry region haven't risen since 2003, which the government says is exhausting meager supplies and keeping the local water utility in the red. At least half a dozen other major cities have raised water prices in the past few months.



The changes reflect a growing official consensus that low prices are part of China's water-shortage problem, since they give companies and households little incentive to use water carefully. The government is also spending billions of dollars on a controversial system of canals to divert water from the flood-prone south to the dry north.

The amount of water available per person in China is just one-quarter of the world average. The World Bank has estimated that water shortages cost China about 1.3% of its annual economic output, with a further 1% lost to water pollution.

"Given the underpricing of water in China and its environmental consequences, I feel it is wise for governments to take the opportunity of low inflation pressure to adjust the water tariff," said Jian Xie, a senior environmental specialist at the World Bank.

Shanghai raised residential water prices 25% in June and plans a 22% increase in November 2010. The central city of Zhengzhou raised water fees 25% in April, and officials say prices will have to change more rapidly in the future.

There has been "strong public reaction" to the price increases in some cities, the National Development and Reform Commission said in a notice in early July. Some local news reports have suggested the price increases are being driven more by corporate greed than a real need to conserve water. The agency, which supervises the prices of regulated goods like water, said local governments need to take public concerns into account as they plan for necessary price increases.


ZUMA Press
A man walks on a dried riverbed in northern China's Gansu province. The amount of available water per capita in China is one-quarter of the world average

The eastern city of Nanjing raised residential water prices 12% in April but also rolled out subsidies to reduce the impact on low-income households.

The rise in water bills has upset consumers even in cities where rates haven't been rising. Zheng Hong, a lawyer in Beijing who lives with seven family members, says his household spends 60 yuan to 70 yuan ($8.78 to $10.25) a month for tap water. He is against any price increases. "The lower, the better," he says. "Compared to my hometown in Henan province, the water prices in Beijing are already pretty high."

China's water prices are still low by global standards, even with the average residential water fee in major cities now up 3% since the end of 2008, to 2.44 yuan per ton. Average water prices in Europe are anywhere from four to 10 times higher, according to Deutsche Bank estimates.

—Sue Feng contributed to this article.
Write to Andrew Batson at [e-mail]

Printed in The Wall Street Journal, page A13