The emerging water scarcity in China has become a major threat to its sustainable development. In view of the insufficiency of supply-augmentation methods, China adopted water pricing as a demand management approach to restore the balance between water supply and demand. Extensive policies have been developed since the 1990s, aiming to achieve cost recovery, water conservation, and social equity. This paper discusses to what extent cost recovery has been achieved in China's water tariff reform. Following a literature review on water pricing, the concept of sustainable cost recovery is advanced, requiring that both the financial sustainability of water utilities and the sustainability of water resources should be considered. A case study in Chengdu provides an insight into water tariff reform at the local level. The findings indicate that despite much progress in raising the water tariff, the current tariff nevertheless is insufficient to improve further the urban water sector. The paper concludes with recommendations for enhancing cost recovery and improving the effectiveness of the water tariff reforms.

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