An econometric analysis of private sector participation in China’s urban water supply

This paper explores the impact of private sector participation on industrial performance of urban water supply by using panel data for 35 major cities in China over the period 1998 to 2008. We find that the introduction of private sector participation is significantly correlated with improvement in integrated production capacity and water coverage rate, but not correlated with the investment in fixed assets. Private sector participation has a positive impact on the integrated production capacity in the developed eastern cities and contributes to narrowing the gap of water coverage rate between the less developed central and western cities and the more developed eastern cities. We also find that the participation of foreign companies, but not domestic private companies, significantly improves water industry performance. The research sheds some light on the importance of private participation in urban water markets. However, the performance of domestic private firms in urban water supply still needs be improved.