Private sector participation and performance of county water utilities in China

In the early 1990s, China opened its urban water sector to private investors to secure the country's growing urban water demand. In Chinese counties which accommodated around 195 million urban population in 2012, private sector participation (PSP) has progressed slowly but steadily among the county-level water utilities. Using a panel data set extracted from the annual surveys conducted by the National Bureau of Statistics of China (1998–2006), we exploit the changes in the PSP status of water utilities and apply a fixed-effects model to identify the causal effects of PSP on 12 performance indicators. We find that utilities with private investment enjoyed significant performance improvement in three areas: output, financial performance and profitability, and efficiency. Using supplementary data from population censuses and statistical yearbooks, we find that water quality is slightly lowered under PSP, while no significant effect is detected for the other service outcomes. The findings suggest that a greater role of PSP in the urban water supply sector of Chinese counties could be promoted.