Rui Bao
Lecturer
Zhou Enlai School of Government, Nankai University, Tianjin, China
baorui@nankai.edu.cn

Jingjing Zeng
Professor
School of Government, Shenzhen University, Shenzhen, China
Correspondence: zjj19831014@163.com

doi: 10.18278/cpj.4.1.3

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Abstract
China’s water governance confronts concurrent pressures of water scarcity and pollution, yet evidence on whether market-oriented water rights trading (WRT) policies improve water outcomes remains limited. This study examines the dual dimensions of water— quantity and quality—by estimating the causal impacts of WRT pilots on water-use efficiency and water environmental quality. Drawing on both nationally mandated and locally initiated WRT pilots, we compile a panel of 31 provinces spanning 2003 to 2023 and employ a difference-in-differences (DID) design and synthetic control methods (SCM). The analysis yields four key findings: China Policy Journal 2 (1) the implementation of WRT policy significantly increases water- use efficiency, with an average increase of 25.6%; (2) although DID analyses do not consistently detect national-level effects on water quality, the SCM analyses identify notable improvements in a subset of pilot provinces; (3) further analysis indicates that efficiency improvements are more pronounced in central and northern provinces and in provinces with higher levels of marketization; and (4) the mechanism analysis suggests that efficiency improvements are mainly achieved through optimization of water-use structure, while water quality enhancements are primarily via strengthened governance intensity. By integrating analyses of water efficiency and quality outcomes, this study reframes WRT as a two-dimensional policy instrument, highlighting its potential to reconcile development and environmental goals in water governance.

Keywords: Water rights trading, water-use efficiency, water environmental quality, water markets, policy pilots