According to Summit Global Management Inc., a US based water investment and consultancy company, the Chinese Government now realizes that what it needs most is a dependable and safe internal water supply and a clean environment to act as a stable platform for sustainable economic growth; growth not sustainable under current conditions.
Investments in Chinese water utilities.
China must depend on professional water consultancy companies to provide the products and technical expertise to help solve its critical water and environmental problems, and such companies are looking at strong demand from China for years to come.
Investments in Chinese water utilities.
According to the Bank of China International, funding for water sector projects in China have historically come from four main sources, namely:

Central government capital investments in large-scale projects
Investments in Chinese water utilities.
Central and provincial/municipal governments partnering to subsidize operational and maintenance costs for irrigation and drainage, flood control and water supply and wastewater treatment (the extent and continuity of this funding is dependent on the government's financial position)
Investments in Chinese water utilities.
The central government's allocation of special funds for special economic and poverty programs, but this fluctuates in accordance with official policy
Invest in China water industry infrastructure utilities
Beneficiaries sharing costs and contributing labour for smaller-scale water projects.

With traditional governmental funding, most water plants in China were operated by governmental affiliates, who are not profit-driven and lack operational expertise. Furthermore, the government set the water tariffs at such low levels that water was even been commonly regarded as part of "welfare". Such drawbacks in the system led to poor operating efficiency and slow technological upgrades of China's water sector. This represents a major opportunity for NCVL.
Invest in China water industry infrastructure utilities
To address these problems, China started deregulating the water sector in 1990s and it began to loosen its control over the sector and open up the market.
Invest in China water industry infrastructure utilities
In December 2001, then State Development and Planning Commission (i.e. current National Development and Reform Commission) issued a mandate, entitled Notice to Promote and Direct Non-government Investment, allowing and advocating non-governmental investment in China’s water sector.
Invest in China water industry infrastructure utilities
In March 2002, the government put a revised mandate, entitled Guidance Catalogue for Foreign Investment, allowing foreign investment for the construction and operations of water plants (including both tap water supply and sewage treatment). The construction and operations of water pipelines were first put under "restricted category", requiring the majority shareholders on such joint ventures be Chinese partners. In recent years, however, the Chinese government has allowed foreign investors to participate as the majority partners in the water industry.
Invest in China water industry infrastructure utilities
Given the importance of the water sector and China's unique characteristics, the government mainly grants the market access to non-governmental investors through public-private partnerships ("PPP"). In practice, PPP in China take the form of concession agreements, which include both build-operate-transfer ("BOT") and transfer-operate-transfer ("TOT") contracts.
Invest in China water industry infrastructure utilities
In recent years, however, the water industry has seen more build-own-operate ("BOO") arrangements, according to the World Bank report on Private Participation in Infrastructure in China. Under this arrange, the private investors would own and operate the water project in perpetuity unless certain performance requirements are not met.
Invest in China water industry infrastructure utilities
To promote PPP in China, the Ministry of Construction issued in April 2004 a mandate, entitled Regulations on Public Utilities Concession. Authorities in Beijing, Shenzhen, Tianjin and Hebei Province have also issued local concession administrative rules.

In the water sector, various operators function differently along its value chain.

Based on BOCI's analysis, tap water suppliers, sewage treatment operators and long-distance raw water suppliers are currently providing the most value-added services along the sector's value chain and such firms will likely benefit more from the sector's deregulation in the medium to long term.