CLEAN WATER: Many cities like Beijing and Shanghai have made progress in the protection of water resources. One example is the Beijing Huairou Reservoir that provides clean water for Beijing's residents (PU XIANGDONG)

So far this year, more than 30 Chinese cities, including Beijing, Shanghai and Guangzhou, have announced plans to increase prices for household water supplies by a range of 0.4 yuan ($0.06) to 1 yuan ($0.15) per cubic meter. On the forefront of the tide was Luoyang of Henan Province, which held a hearing on July 30 to solicit public opinions about a proposed price increase by a staggering 50 percent.

The local governments have been pushing up prices, with a view of encouraging more recycling and efficient water use. The motivation is reasonable, given how dire the country's water needs have become.

China's annual per-capita water availability stands at 2,200 cubic meters—25 percent of the global average. As the growing population living off the meager endowment enjoys higher levels of consumption, the demand for water has exploded. While rapid industrial expansion and severe pollution put a heavy strain on water supplies, fears are emerging that the buoyant economic growth could dry up. In many big cities, depleted groundwater levels are causing the ground to sink.

Over the past 20 years, the government has allowed water prices to gradually increase, but at an alarmingly sluggish pace over concerns of inflation. At the end of 2008, the average household water price in 36 large and medium-sized cities was 2.35 yuan ($0.34) per cubic meter, about 12 percent higher than in 2005.

The annual water consumption by Chinese is comparable to barely 2 percent of their annual per-capita disposable income, well below the worldwide average level of 3 to 4 percent, said the World Bank in a report issued earlier this year.

Low prices can reflect neither the scarcity value of water resources nor the delivery nor pollution treatment costs, and tend to discourage investments in water treatment, recycling and reuse. Moreover, the poor water quality and inadequate services posed a threat to the public health, said the World Bank report.

In the face of a daunting challenge to protect clean water and feed the galloping economy, the country has to wield the price leverage.

It is necessary to take a step-by-step approach to press ahead with the water price reforms, which is helpful with sustainability of the economic momentum, said the National Development and Reform Commission (NDRC), the top economic planner, in a statement released on August 3.

But a series of measures should be taken to make the price changes acceptable to the public, such as subsidies to the low-income groups and an increase in the transparency of domestic water suppliers, said the NDRC.

Murky water

Analysts raise concerns that the water cost inflation may swiftly ripple through a number of sectors like steel and power generation that use water as vital resources in their operations. Besides this, the price increase may not be an effective catalyst for the rich to avoid waste, and instead would put a squeeze on the well-being of the poor, they said.

Meanwhile, after going through continuous price hikes, the consumers have been asking questions about how the increased collection of fees was being used.

An effective mechanism needs to be established to ensure that the fees are properly used to improve water treatment facilities or raise consumer awareness of conservation, said Li Ziran, a researcher with the Chinese Academy of Social Sciences (CASS), in an interview with the Economic Information Daily.

"If this is not adequately handled, it will definitely be a stumbling block to further price rises, and cast an ominous shadow over the industry in the long run," Li said.

More importantly, suspicions arise that the price increases may be driven more by corporate greed for higher returns than a so-called need to restore the supply-demand balance. This obviously goes against the nature of the water supply as part of their public goods that are subject to a stringent cap on its profit margins, said analysts.

Many water companies push for changes to the under-pricing, which they claim have dragged their businesses into the red, said Fu Tao, a water resource expert with Tsinghua University, in a statement. But the excuse sounds flimsy as most of the suppliers have kept their balance sheets in the black, he added.

Their losses, if any, may have other causes, such as mismanagement in delivery networks or inefficiency of water treatment, he said.

It is obviously not fair to make consumers foot the bill for their mistakes, he added.