[Mainland China] Revised Regulations on Urban Drainage and Sewage Treatment Published: Reclaimed Water Granted Statutory Priority Use

Introduction: The full text of the revised Regulations on Urban Drainage and Sewage Treatment was published on the official website of the Ministry of Ecology and Environment on 2026年10月9日 (promulgated by 2013年 State Council Decree No. 641, and revised in accordance with the Decision of the State Council on Amending and Repealing Certain Administrative Regulations of 2026年8月8日). The Regulations explicitly stipulate that sewage treatment fees shall be incorporated into local fiscal budgets, earmarked exclusively for facility construction and operation and for sludge treatment and disposal, and shall not be diverted to other uses, and that the fee rates shall not be lower than normal operating costs; in addition, a dedicated article requires that industrial production, urban greening, road sweeping, vehicle washing, construction, and ecological landscapes give priority to the use of Reclaimed Water.

Revision Background: A Decade of Change for the Industry's Foundational Administrative Regulation

The Regulations on Urban Drainage and Sewage Treatment are the administrative regulation with the highest level of legal effect in China's urban drainage and sewage treatment sector. Since their promulgation by State Council Decree No. 641 on 2013年10月2日, they have remained the legal foundation for plant and network construction, operational supervision, and fee mechanisms across all localities. This revision, made in accordance with the Decision of the State Council on Amending and Repealing Certain Administrative Regulations of 2026年8月8日 and with the full text made public on the official website of the Ministry of Ecology and Environment on 10月9日, marks the completion of a systematic alignment between this foundational system and the new requirements of Water Environment Governance in recent years.

The Regulations apply to four major segments of urban drainage and sewage treatment: planning, facility construction, maintenance and protection, discharge into urban drainage facilities and sewage treatment, and urban waterlogging prevention and control, and establish five principles: "respecting nature, coordinated planning, supporting construction, ensuring safety, and comprehensive utilization." Among these, "comprehensive utilization" is written into the principles clause, providing a superior-law basis for the resource recovery of Reclaimed Water and sludge.

Core Change One: "Earmarked Funds" and Cost Coverage for Sewage Treatment Fees

For a long time, sewage treatment fees in some regions have suffered from problems such as low collection rates and diversion to other uses, directly affecting operating entities' cash flow and investment in facility maintenance. Article 33 of the revised Regulations imposes rigid requirements in this regard:

• Budget management — Sewage treatment fees shall be incorporated into local fiscal budget management and earmarked exclusively for the construction and operation of urban sewage treatment facilities and for sludge treatment and disposal, and shall not be diverted to other uses;
• Cost coverage — The fee rates shall not be lower than the normal operating costs of urban sewage treatment facilities;
• Subsidy backstop — Where, for special reasons, the sewage treatment fees collected are insufficient to cover normal operating costs, the local people's government shall provide subsidies;
• Information disclosure — The collection and use of sewage treatment fees shall be disclosed to the public.

At the same time, Article 35 specifies that the competent urban drainage authority shall verify and determine the operational service fees based on the operating entity's performance and on the results of supervision and inspection of effluent quality and quantity by the competent ecology and environment authority, and the relevant departments shall allocate the funds promptly and in full. This "pay-for-performance" mechanism design directly links effluent quality to operational service fees, imposing higher requirements on operators' ability to consistently meet standards.

Core Change Two: Reclaimed Water Moves from "Encouraged" to Statutory Priority

Article 37 is one of the most closely watched clauses in this revision. The Regulations stipulate: the state encourages the reuse of Reclaimed Water from urban sewage treatment; industrial production, urban greening, road sweeping, vehicle washing, construction, and ecological landscapes shall give priority to the use of Reclaimed Water; local people's governments at or above the county level shall, based on local water resource and water environment conditions, reasonably determine the scale of Reclaimed Water utilization and formulate safeguard measures to promote Reclaimed Water utilization; and Reclaimed Water shall be incorporated into the unified allocation of water resources, with water administration authorities strengthening guidance in accordance with the law.

The wording "shall give priority to the use" elevates Reclaimed Water from the level of policy advocacy to the level of statutory priority, meaning that in areas with Reclaimed Water supply conditions, the above six categories of water use will be directed preferentially to Reclaimed Water in the approval and allocation process. For Reclaimed Water projects, this is equivalent to securing a batch of rigid baseline users for the "second water source," significantly improving the project's water volume offtake and revenue expectations.

In addition, Article 6 of the Regulations encourages the adoption of various forms such as franchising and government purchase of services to attract social capital participation in investment, construction, and operation, and encourages and supports scientific and technological research on sewage treatment, the promotion and application of advanced and applicable technologies, processes, equipment, and materials, and the promotion of sewage reclamation and the resource recovery of sludge and rainwater.

Core Change Three: Supervision and Exit Mechanisms Tightened in Tandem

While strengthening funding guarantees, the Regulation also tightens operational responsibilities. Article 34 requires the competent ecological and environmental department to supervise and inspect the effluent quality and volume of urban sewage treatment facilities in accordance with the law; the competent urban drainage department shall supervise and assess operational performance and publicly disclose the assessment results; and facility maintenance and operation entities shall provide the conditions necessary for the safe operation of online monitoring systems for influent and effluent.

Article 36 specifies exit circumstances: if supervision and assessment reveal that an operating entity has failed to perform its contractual obligations, suspended operation without authorization or partially suspended operation of urban sewage treatment facilities, or that the facilities cannot operate safely for other reasons, the competent department shall order rectification within a specified period; if rectification is not completed within the deadline or the facilities still cannot operate safely after rectification, the maintenance and operation contract may be terminated, and effective measures shall be taken to ensure the safe operation of the facilities.

Three Impacts on the Industry

First, the cash flow expectations of operators are improving — dedicated use of sewage treatment fees, a pricing floor of "not lower than operating costs," and transparent verification of performance-based payment provide a legal basis for resolving the long-standing problem of fee arrears in the industry. Second, the demand side for reclaimed water is opening up — six categories of water use are legally required to prioritize reclaimed water, and in conjunction with mandatory reclaimed water utilization targets recently issued by many localities (e.g., Shandong proposes that the urban reclaimed water utilization rate reach 60% by 2030年), demand-side certainty has increased markedly. Third, compliance and O&M thresholds are rising — the combination of online monitoring, performance-based payment, and exit mechanisms is forcing operating entities to increase investment in smart monitoring, precise chemical dosing, and process control, and small operators lacking stable operational capabilities will be phased out at an accelerated pace.

Conclusion

Locking sewage treatment fees into the cage of "dedicated use" and placing reclaimed water in a position of "statutory priority" — this revision uses two clear threads to simultaneously address the industry's most pressing concerns: where the money comes from and where the water goes. For water treatment enterprises, the focus of competition will shift from "whether a project can be built" to "whether it can operate in compliance stably and at low cost over the long term."

About TIANYI TECH: TIANYI TECH (TIANYI LIMITED) focuses on the fields of wastewater treatment, reclaimed water reuse, and water environment governance, providing municipal and industrial clients with full-chain services including process design, equipment integration, engineering, procurement and construction, and smart operations. The company continuously tracks global water treatment policies, technologies, and market trends, and is committed to helping customers achieve efficient water resource utilization and sustainable management through reliable solutions. For more information, please visit the company website at www.tianyitech.hk.

Source: Public information from the Ministry of Ecology and Environment of the People's Republic of China, "Regulation on Urban Drainage and Sewage Treatment" (revised on 2026年8月8日, promulgated on 2026年10月9日)