Valuation Study

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Water Use Rights Systems


Medium: Water

Country: China

Analytical Framework(s): Other

Study Date: 2004

Publication Date: 2005

Major Result(s)

Study Note: In a water market, a water rights system underlying well-defined property rights must first be established and well implemented in order for water trade to work. In Zhangye city, a WUR system has been designed and promoted. Water trading would be difficult or even impossible if the WUR system is not well implemented. This study considers two different and independent processes, WUR system implementation and WUR trading, separately. The analysis on WUR trading is based on the proper implementation of the WUR system. The Hongshuihe irrigation area is one with a wellimplemented WUR system while other WUR systems have not been well implemented in most other areas of Zhangye city. In this case, the barriers to implementing a WUR system are first analyzed in the areas of Zhangye city with poorly implemented WUR systems. Then the barriers to water trading are analyzed in the Hongshuihe irrigation area based on the wellimplemented WUR system found there.

Study Details

Reference: Junliang Zhang. 2005. Barriers to Water Markets in China's Heihe River Basin. EEPSEA Research Report, No. 2005-RR8.

Summary: Tradable water rights systems are becoming an important way to achieve distributive efficiency for water resources. However, it is not easy for countries or regions to set up the system and water markets due to the existence of various barriers. In early 2002, the Ministry of Water Resources (MWR) of China initiated an experimental project to establish a water-saving society in Zhangye city in the Heihe river basin in north-west China - this project was the first of its kind in China. The aim of the project was to establish a new water use rights (WUR) system with tradable water quotas and to reallocate water resources reasonably and efficiently through marketbased instruments. This report presents the research done on the system and water markets. It has been found that that the system is hard to implement well and that WUR trading is not popular. The barriers to implementing a WUR system are social and administrative in nature. Local farmers cannot be forced to limit their water use because they cannot endure losses caused by water shortage. Local water agencies have no incentive to restrain local farmers from using excessive water. On the other hand, WUR trading faces management, legal, administrative, and fiscal barriers. There are management risks for farmers in switching to low water-intensive crops. It is also difficult for water buyers to buy rights to land and water use from farmers with small parcels. Farmers are discouraged from selling water to the government whom they fear will reduce their water quotas, and divert irrigation water to other sectors. This report gives some policy recommendations to overcome these barriers.

Site Characteristics: The Heihe River, the second longest inland river in China, originates from the Qilianshan Mountain which lies mainly in the Qinhai province and ends in Juyanhai Lake in Inner Mongolia. The study area is Zhangye city of Gansu province, which is located somewhere midstream of the Heihe River. According to the Statistics Bureau of Zhangye City (SBZC 2003), the city is 42,000 km2 in size and governs six counties; Ganzhou, Shandan, Minle, Gaotai, Linze and Sunan Yugur. The city currently has a population of 1.264 million, including a rural population of 911,000 and an urban population of 353,000. The urbanization rate is 27.9%. The area of farmland is 260,000 ha. Located in one of the driest zones in the world, Zhangye city is an oasis mainly watered by the Heihe River. The precipitation in the city is 89-283mm per year, while the evaporation is 1,700mm per year. The water sources of the Heihe river basin are mainly the snow-melted water from the Qilianshan Mountain which is perpetually covered by snow. There are 26 rivers in the basin. All the rivers originate from the north side of the Qilianshan Mountain. The total water volume is 2.65 billion m3, including 2.475 billion m3 of surface water and 0.175 billion m3 of groundwater. So far, there are 24 irrigation areas which are larger than 10,000 mu (667 ha), 43 small and middle-sized reservoirs, and 35 pool embankments with a total water capacity of 202 million m3. There are 814 main canals and branch canals, and 4,489 irrigation wells. The available irrigation area is 257,000 ha, including 212,000 ha of farmland and 41,000 ha of forestland and grassland.

Comments: The research presented in this article explores the barriers to water markets in the Heihe river basin in north-west China and examines ways to overcome these barriers. This research is limited to agricultural water use and its transfer to other sectors.