Development of Water Markets in the Yellow River Basin: A Case-Study of the Ningxia Hui Autonomous Region

Abstract: The Yellow River Basin Commission (YRCC) is struggling with demand and supply water imbalances due to inter-jurisdictional rivalries, and has consequently promoted the development of water rights trading to incentivize provinces from not exceeding their allocated withdrawals in the Yellow River Basin (YRB). This thesis employs the case of Ningxia Hui Autonomous Region to examine factors that facilitate or hinder market-based water rights allocation in the YRB. By reviewing scholarly literature, governmental reports and conducting interviews with governmental officials and water rights experts, it argues that two features of China’s water resource management shape water markets in Ningxia: asymmetric information and lack of coordination mechanisms. The flaws in the performance of Ningxia’s water rights transfer system – including inconsistency and lack of integration between the Yellow River Water Allocation Plan and abstraction permits; little consideration to groundwater and surface water linkages – stems from asymmetric information on hydrology and abstraction licenses and absence of formal mechanisms for cross-sectoral coordination. As economic development proceeds in the western interior regions along the Yellow River Basin, the pressure to reallocate water between agriculture to industry through inter sectoral water trading will increase. Consequently, trade-offs between energy vs food production, higher-value use vs equity & environmental flows as a result of tradable water rights is to some degree inevitable; however, collective action challenges of exclusion and coordination tied to mitigating these tensions will put the existing institutional framework governing water rights under growing pressure.