The Influence of the Regulatory Environment on Chinese Urban Water Utilities

China is currently facing water scarcity issues, which can partially be relieved with improvements in efficiency in its urban water supply sector. Using a manually collected utility-level dataset for 2009-13, we examine the performance of Chinese urban water utilities, taking into account their regulatory environment. Our main findings are that: (1) an increase in the number of non-technical staff does not increase output levels, while an increase in the number of technical staff, length of pipe or electricity usage can increase output; (2) customer density and non-household user rates are associated with lower levels of inefficiency (or higher levels of measured efficiency), while outsourcing staff rate, non-revenue water rate, and average piped water pressure do not significantly affect efficiency. These results suggest that Chinese urban water utilities can be improved through performance-based regulation and incentives that take into account environmental factors of utilities.