||Over the past decade there has been considerable interest world-wide in public private partnership in water and sanitation sector. This paper first discovers the history of water privatization in developed countries and developing countries; and use transaction costs economics, principal agent theory, coupling with analysis of Chinese contexts in water and sanitation sector, tries to find out whether there is an alternative setup for PPP in water and sanitation sector in China; in addition, by presenting different figures and water inherent characteristic to point out that introduction of water privatization in a country that has no experience in this matter is a long and difficult process. Private companies are not social services. They will only provide public goods or below cost water supplies if they can recover the costs involved, including their required return on any investments made.
Furthermore, the paper concludes that public funding obviously will remain important in the future wherever in China or in the world. The government still has to play a main role; it cannot completely escape from the sector. However, cautious and selective use of privatization can be a tool to help government run efficiently, such as joint ownership. But, in general, PPP is not an essential solution for most of water and waste water utilities in China.