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

Listed author(s):
  • Jiang , Yi

    (Asian Development Bank)

  • Zheng, Xiaoting

    (Asian Development Bank)

Registered author(s):

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, we assembled and analyzed a unique dataset consisting of more than 200 urban water utilities covering 1998–2007. Our 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, we find 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.

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Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 237.

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Length: 37 pages
Date of creation: Dec 2010
Handle: RePEc:ris:adbewp:0237
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