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Water privatization in China affects more than 26 million people (2% of the population) who receive either their drinking water from private companies or have their wastewater treated by them. The exact number of private water and wastewater projects is not known and may be 300 according to a survey by Tsinghua University conducted in 2006. There are two basic forms of private sector participation in water supply and sanitation in China:

• Build-Operate-Transfer (BOT) projects for water treatment plants or wastewater treatment plants.
• Concessions for water treatment, distribution and billing.

BOT projects are by far the most common form and also the earliest form of private sector participation in the Chinese water sector. Until 2002 private sector participation in the Chinese water sector was actually restricted to treatment plants. The first water BOT project in China - the Da Chang water treatment plant in Shanghai - was awarded in 1996 to Thames Water from the UK. The company was selected without competitive bidding and was offered a fixed rate of return on equity of 15%. In 1998 the central government issued a BOT circular that foresaw competitive bidding. With the advice of the Asian Development Bank it then approved a project for a water treatment plant in Chengdu that was competitively awarded to a consortium of Vivendi Environnement and Marubeni. However, subsequent BOT projects were not approved any more by the central government. When the central government reviewed the arrangements for BOTs in 2002, it declared fixed rates of return illegal. Subsequently Thames Water sold its stakes back to the municipal company.

When private companies were allowed to invest in water distribution as well in 2002, this was done under the condition that the private companies would only own a minority of the project companies. About 27 projects are concessions for utilities that also involve water distribution and the billing of final customers. The largest utility concessions are in Pudong, Shenzhen, Fuzhou, Wuhu, Tianjin and Lanzhou, each serving more than 1.5 million people. There has been no private sector participation in sewerage. Water privatization has been concentrated in cities with high financial and human capacities, often on the Eastern and Southern Coast.

Since tariff revenues typically are not sufficient to pay the fees to the private operators, municipalities typically have to subsidize the payment of fees. This is especially true in the case of wastewater treatment plants, since sewer tariffs are lower than water tariffs. Sometimes fees to be paid to the private companies are fixed and the bidder who pays the highest up-front price wins the concession, resulting in high BOT fees. In other cases the contract is awarded at no price to the bidder that would propose the lowest fee, resulting in lower fees.

The earliest water concession on the Chinese mainland in the post-Mao era was awarded in the then Portuguese colony Macao in 1985. Most private water contracts in China have been awarded through competitive bidding, although a number of contracts have been awarded through direct negotiations. The main foreign investors in the Chinese water supply and sanitation sectors are the French companies Veolia Environnement and Suez Environnement, followed by NWS Holdings and other companies from Hongkong, as well as Salcon Bhd from Malaysia and Asia Water Technology from Singapore. Domestic companies are also very active and often partner with foreign companies. Project companies typically are Joint Ventures between private companies and municipal water companies, with the private company as the minority shareholder.

Macao concession. Water supply to the Portuguese colony Macao has been in private hands since 1935 when a concession was signed with a British company. By the 1980s the government and citizens became dissatisfied with the performance of the company. In 1985 Sino-French Holdings Ltd. (SFH) signed a 25-year water concession. SFH is a Joint Venture by Suez Environnement of France and NWS Holdings Limited of Hongkong. The new private operator succeeded in reducing the level of non-revenue water from 40% to only 12% until 1989. The concession was upheld when Macao became part of the People's Republic of China in 1999. In 2009 the concession was renewed for another 20 years. Based on the experience in Macao, Suez Environment and New World established the Sino-French Water Development Company Limited (SFWD) to invest in water provision, water treatment, and industrial sewage treatment in the People's Republic of China. As of 2008, SFWD had established 20 joint ventures serving over 12 million people.

Pudong concession. The concession for Pudong, the financial and economic hub of Shanghai, was the first water concession in the People's Republic of China. The 50-year concession was awarded after competitive bidding in 2002 to a Joint Venture partly owned by Veolia (50%).

Chongqing concession. The 50-year concession for Chongqing was awarded to a consortium of Suez and NWS Holding without competitive bidding in 2002. The two private companies each hold 30% of the project company.

Shenzhen concession. According to a study by the Asian Development Bank, the city of Shenzhen is leading the reform of local water management in China. Inspired by the experience of the water utility in nearby Hongkong, it was one of the first cities in mainland China outside Hongkong that has combined all water-related government functions into a single agency in 2001. Furthermore regulatory functions were separated from operative functions. In 2003 the third concession for municipal public utilities in China was bid out in Shenzhen. The 30-year concession was won by a Joint Venture called Shenzhen Water that includes the French firm Veolia (25%) and its Chinese partner Capital Water (20%). The majority of the Joint Venture (55%) is held by the State Council Committee for the Regulation and Management of State-owned property. The Joint Venture was approved at the national level by the Ministry of Commerce. In 2009 Shenzhen Water was the largest water supply and sanitation enterprise in the country. The wastewater treatment sector in Shenzhen has developed rapidly since the reform of 2001. The sewage treatment rate in the Shenzhen Special Economic Zone has increased from 56% during pre-integration to over 88% in 2008, ranking first among large and medium-sized cities in China. The Asian Development Bank called the Shenzhen case "a model for market-oriented reform in the urban water sector". In 2008 the Shenzhen Water Group had expanded and invested in 17 water projects in 7 provinces. The $40 million equity stake of Veolia is covered by a 15-year MIGA guarantee to protect against the risk of expropriation.

BOT contracts. The most common form of private sector participation in water supply and sanitation in China are Build-Operate-Transfer (BOT) contracts for drinking water treatment plants or wastewater treatment plants. Experience with BOT contracts has been mixed. For example, the local government of Lianjiang had the 100,000 m3/day Tangshan water treatment plant built by SUEZ under a BOT contract in 1999. However, the water demand had been grossly overestimated, so that the plant lay idle while the local government had to pay for substantial minimum volumes without using them. This pushed up tariffs. After lengthy negotiations the local government bought back the plant in 2009.

World Bank recommendations. A 2007 World Bank report recommended that Chinese municipal policymakers should first set out a clear reforms and then determine what place the private sector could play to achieve the goals of the reform. In particular, the report recommends to use more non-investment arrangements for private sector participation such as lease and management contracts that increase efficiency and service quality. In the case of investment arrangements, such as BOT contracts, the risks have to be well understood and "should be allocated to the party best able to manage the risk". The report also warns that funds can be drawn away from network maintenance because they need to be used to pay BOT fees.