While uncertainties still linger over the local suppliers, there is no doubt about the profit-chasing instinct of their foreign investors. In the late 1990s, China started to lift most of the protectionist barriers that kept foreign firms out of the water sector. Since then, dozens of foreign companies have poured in, building footholds in the less competitive and potentially high-paying sector.

Analysts fear that foreign investors, wary of trickling revenue streams, may be pressuring their Chinese partners to juice up profits. The speculation is not unfounded. Since 2005 when the French water affairs giant Veolia Water S.A. bought a 49-percent stake in Kunming Water Supply Group Co. Ltd., water prices in the southwest city have jumped a dizzying 90 percent so far. In another case, the price in Lanzhou, capital of northwest China's Gansu Province, has become nearly 40 percent higher than in 2007 when Veolia snapped up a 45-percent interest in Lanzhou Water Supply Group.

The foreign investors may not be the decision-makers, but they are definitely advocates of higher bills, said Li Zhihui, a senior water resource consultant with the Goran-Chise International Finance Consulting (Beijing) Co. Ltd., in a report.

Finding a way out

To smooth the way for the price adjustments, the NDRC required local governments to take full responsibility for bearing the capacities of consumers, the low-income populations in particular. If necessary, subsidies to the poor households can be increased, it noted.

The NDRC also suggested promoting a ladder structure pricing regime in the statement. The regime allows subsidized prices for a certain amount of water use that can meet basic living needs, with rates applied to excessive consumptions gradually increasing to reflect the true costs of water supplies.

In order to have rational pricing, it is also necessary to streamline cost accounting of the domestic water companies and proceed with public hearing systems to strengthen transparency of the price moves, it added.

The World Bank report said Chinese consumers should be granted better access to reliable and complete information on water qualities, decision making and behavior of related stakeholders as a way to overcome the public resistance to price hikes.

The water companies should also strike a balance between interests of their foreign investors and their concerns for their consumers, said Xu Guangjian, an economics professor with the Renmin University. It's also imperative for them to make progress in delivery, maintenance and corporate management, instead of passing the buck to consumers, he added.

The government is also expected to strengthen supervision over the industry and coordination with water supply companies, said Fan Mingyuan, a senior environmental engineer with the World Bank in the report.

Price increases must additionally be accompanied by greater investments in more efficient technologies, recycling facilities and pollution control, Fan added.

COSTLY WATER: A number of cities across the country plan to raise water supply prices to encourage conservation (CHEN FEI)