This article employs the case of China to address questions concerning the proper design and implementation of Water Rights Trading (WRT) and its applicability in developing countries. The article relies on key-informant interviews and Chinese-language sources to explain the development of China's water markets to date, and to assess their future prospects for expansion. The article proceeds in three parts. First, it identifies three distinctive features of water policy in China that limit the applicability of market-based responses to water scarcity: a legacy of administrative control over water, a distinctive agricultural structure and politics, and central–local tensions and conflicts. Second, it surveys the status of current WRT projects in China, highlighting their limited scope by examining three case studies. Finally, the article identifies specific issues that must be addressed to further develop Chinese water markets. The article argues that water markets have an important but only partial role in meeting China's water resource challenges. Scholars interested in the design and implementation of water markets in developing countries should pay greater attention to such fundamental features of governance and water resource management, and the prospect of integrating market mechanisms with administrative and supply-augmentation approaches.

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