[Mainland China] Second Review of the Water Law Amendment Draft: Water Pricing Mechanism Incorporated into National Legislation, Unconventional Water Included in Unified Water Resource Allocation, Urban Greening and Other Water Uses "Shall Prioritize Recl

Introduction:8月25日, the draft amendment to the Water Law was submitted to the 24th session of the Standing Committee of the 14th National People's Congress for second review. The second-review draft clarifies that the state shall establish and improve a water pricing formation mechanism that is compatible with the level of economic and social development, water resource conditions, water supply costs, users' affordability, and water conservation requirements; incorporate unconventional water sources such as harvested rainwater, seawater and desalinated seawater, mine (pit) water, and brackish water into the unified allocation of water resources; and stipulate that water used for urban greening and other purposes shall prioritize the use of reclaimed water.

Provision Most Closely Watched by the Water Industry: Water Pricing Formation Mechanism Written into Law

The Water Law is the "fundamental law" in the water-related field. Following its initial review at the 22nd session of the Standing Committee of the 14th National People's Congress in 4月27日 of this year, the revision was open to public comments, resulting in the second-review draft submitted for deliberation in 8月25日. From the first to the second review, the most industry-attentive change is the refinement of the water pricing formation mechanism clause — the second-review draft clarifies that the state shall establish and improve a water pricing formation mechanism compatible with the level of economic and social development, water resource conditions, water supply costs, users' affordability, and water conservation requirements, so as to promote the conservation and intensive use of water resources.

The significance of this clause lies in elevating the price lever to the legal level: for a long time, adjustments to water supply and sewage treatment fee standards have lagged behind cost changes, and "price inversion" has constrained the sustainable development of the industry. With the water pricing mechanism written into law, price adjustments now have a basis in higher-level legislation, and the institutional framework for what to adjust, how to adjust, and to what extent will become clearer. The second-review draft also stipulates that unified water resource dispatch shall implement total volume control, cross-section flow control, tiered management, and tiered accountability, with dynamic adjustments based on changing hydrological conditions, providing an institutional foundation for coordinated management of water pricing, water quantity, and water quality.

Unconventional Water "Formalized": From Policy Encouragement to Legal Allocation

The second-review draft takes a key step forward in the conservation and intensive use of water resources — incorporating unconventional water sources such as harvested rainwater, seawater and desalinated seawater, mine (pit) water, and brackish water into the unified allocation of water resources. This means unconventional water sources are no longer merely a "supplementary option" but are placed alongside surface water and groundwater in the national water resource allocation framework.

Regarding reclaimed water utilization, the draft is even more direct: Local people's governments at or above the county level shall take measures to encourage the use of reclaimed water that meets standard requirements; water used for urban greening and other purposes shall prioritize the use of reclaimed water. The phrase "shall prioritize" grants reclaimed water a statutory priority status in specific scenarios, echoing the Ecological Environment Code that takes effect in 8月15日 — the Code already clarifies that the state encourages and supports wastewater resource utilization, and local people's governments at or above the county level shall make coordinated plans and construct infrastructure for wastewater resource utilization.

Supporting Institutions Introduced in Rapid Succession: National Water Network, Rigid Constraints, and Water Rights Trading

Around the systematic governance of water resources, the second-review draft adds or improves a series of foundational institutions:

• Accelerating the construction of the national water network — The state shall focus on improving the optimal allocation system for water resources, the flood prevention and disaster reduction system for river basins, and the water ecological protection and governance system, coordinating existing and incremental assets, strengthening interconnection, and accelerating the construction of the national water network.
• Rigid constraints on water resources — Conduct water resource carrying capacity assessments, establish a list of water-overloaded regions, suspend new water withdrawal permits in overloaded regions, and establish a groundwater reserve system.
• Refined groundwater management — The water administrative department of the State Council shall organize the delineation of national groundwater over-extraction areas, and the water administrative departments of provincial people's governments shall coordinate the delineation of groundwater prohibition zones and restriction zones within their administrative regions.
• Water rights trading system — Establish a water rights trading system, support various forms of water rights trading, and include investment in water-saving facility construction in the total investment of construction projects.
• Accountability for water-related issues — For significant water-related ecological environment problems discovered during ecological environment protection inspections and rectification, as well as dereliction of duty, accountability and disciplinary action shall be pursued in accordance with state regulations.

In addition, the draft adds provisions on flood water resource utilization and storing water during wet seasons for use in dry seasons, requiring water resource dispatch to be coordinated with flood dispatch; and devotes two dedicated chapters to "River and Lake Management and Protection" and "Water Project Construction and Operation" to strengthen supervision over river-related construction projects and river sand mining.

Legislative Direction: Water-Related Legal System Enters a New Phase of "Code + Individual Laws" in Parallel

It is worth noting that the revision of the Water Law and the implementation of the Ecological Environment Code form an institutional relay: the Code achieves systematic integration in the fields of pollution prevention and ecological protection through compilation and revision, while individual laws such as the Water Law, the Yangtze River Protection Law, and the Yellow River Protection Law remain effective and are implemented in coordination after the Code takes effect. Legal scholars point out that the revision of the Water Law is driving this foundational water-related law to transform from a legislative philosophy emphasizing water resource development, utilization, and administrative management toward a comprehensive water law and integrated law that implements the "three-water coordination" (water resources, water environment, and water ecology).

Industry consensus suggests that once the revised Water Law draft is further reviewed and approved, wastewater treatment and reuse, reclaimed water pipeline network construction, and non-conventional water utilization facility deployment will be upgraded from "policy encouragement" to "statutory arrangements," triggering a systematic restructuring of water utilities' business models, revenue structures, and local government allocation responsibilities. For the wastewater treatment and reclaimed water reuse industry, the triple institutional supply of water pricing mechanisms + reclaimed water priority + unified allocation of non-conventional water resources represents the most significant legislative signal worth attention this year.

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