Barriers to water markets in the Heihe River basin in northwest China

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 establish water markets due to the existence of various barriers. In early 2002, the Ministry of Water Resources (MWR) of China initiated an experimental project—Building Water-saving Society in Zhangye City. 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 market-based instruments. This paper 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. WUR trading faces management, legal, administrative, and fiscal barriers. We discuss why these barriers exist and we provide policy recommendations to overcome them.