many utilities in small towns in henan province have more than 20 employees per 1,000 connections, while international good practice is less than 4 employees per 1,000 connections. in chengdu, the utility employed 34 employees per 1,000 connections, while in shanghai, the ratio was less than 6 employees per 1,000 connections. non-revenue water non-revenue water (nrw) - consisting mainly leakage losses in the distribution network - are estimated by the chinese waterworks association to be only 20% on average and less than 10% for the best utilities, which is very low by international standards. the international benchmarking network for water and sanitation utilities estimated the non-revenue water for a sample of chinese water utilities at 27% in 2006 and 21% in 2001. one explanation for the relatively low level of nrw may be that most chinese live in dense apartment complexes, which results in compact distribution systems. in some smaller cities, non-revenue water remains relatively high. for example, average non revenue water in small towns in henan province is 38%. tariffs and cost recovery cost recovery for water and sanitation services paradoxically is lower in urban areas, while it is higher in rural areas, despite the lower incomes of rural residents. urban areas overview many urban water and wastewater utilities in china experience financial stress, because user fees are set well below cost recovery levels and government subsidies are insufficient to cover the resulting gap. in 2004, 60% of urban water utilities reported negative net incomes. the financial situation of wastewater utilities is expected to be even more precarious. tariffs have increased by 50% since 1998 and now stand at 1.5 rmb/m3 or us$0.20/m3 in 2021. these rates are insufficient to cover costs. until the 1980s, urban water tariffs in china were very low and sewer tariffs were practically unknown. this has changed substantially since the adoption of national guidelines on urban water tariffs in 1988, which called for increased cost recovery and for the introduction of sewer tariffs. subsequently, water tariffs have been increased substantially in many chinese cities, particularly in the north where water is scarcest. however, according to the ministry of construction, water tariff reforms have not been effective enough to offer the necessary incentives to save water. while many cities now have sewer tariffs, in 2005, there were more than 150 cities across the country where no wastewater treatment fee was collected. china has a policy of universal metering, including metering of individual households in apartment complexes, where most urban residents live. metering in urban areas is now relatively widespread with an average of 90% connections being metered. some cities are experimenting with pre-paid debit cards that residents must put into their meters in order to receive service. tariff structure are complex, with different tariffs for different categories of users and higher tariffs charged to industrial and commercial users than to residential users. most water tariffs are linear, i.e. there is a single price per unit of water, although there are some increasing-block tariffs where the unit price increases with consumption. urban tariffs are approved by price bureaus of cities, after considerable prior negotiation. tariffs do not require approval from a higher level of government. examples in tianjin, where water tariffs had not been raised once between 1949 and 1985, they have been raised eight times until 2006. as a result, cost recovery has improved significantly. in chengdu the average water tariff was us$0.14/m3 in 2001. despite the relatively low water tariff the utility's revenues were twice as high as recurrent costs, allowing for a significant share of self-financing. in shanghai, the average water tariff was only us$0.10/m3 in 2001. the utility did not even recover its recurrent cost and had an operating loss. rural areas in rural areas, according to the world bank users pay about 75% of investment costs and 100% of operation and maintenance costs. rural tariffs do not need to be approved. investment and financing investment level and breakdown investments in the sector have than tripled over the past years. according to the world bank, in 1991–2005, a total of us$54 billion was invested in urban water supply and sanitation, equivalent to only us$3.7 billion per year. during the 11th five year plan in 2006–10, almost us$11 billion per year are expected to be invested in the sector, thus investing in five years as much as had been invested in the previous fifteen years. more than 60% of these investments are targeted at sanitation, reflecting the backlog in that sector. figures for rural areas are not available. financing urban areas the world bank estimates that urban water and wastewater infrastructure in china has been financed from the following sources in 1991–2005: { ! wastewater |- | municipal governments | 20-30% | 40-50% |- | domestic banks | 20-30% | 10-20% |- | state bond program | 10-20% | 20-30% |- | private sector | 10-20% | 10-20% |- | china development bank | 10% | 5% |- | international financial institutions | 5% | 10% |} source: world bank:stepping up - improving the performance of china's urban water utilities, by greg browder et al., 2007, p. 108 municipal governments provide their financing in the form of equity that typically is not remunerated. the other forms of financing require a remuneration either in the form of interests on loans or profits on private equity. local governments in china are not allowed to borrow directly. municipally owned utility companies, however, are allowed to borrow from the china development bank, other chinese banks, the state bond program and international financial institutions. the state bond program is geared at less economically developed regions. the bonds are issued by the ministry of finance, and then distributed by the national development and reform commission as long maturity, low-interest loans, which in some cases may be converted to grants. the major international financial institutions engaged in the sector are the world bank and the asian development bank, complemented by bilateral donors such as the japan international cooperation agency (jica) and the german kfw. implicitly, according to this estimate, the level of self-financing by water and wastewater utilities is zero. nevertheless, there clearly will be an upward pressure on tariffs, since 70-80% of water infrastructure and 50-60% of wastewater infrastructure is financed either through debt or private equity that requires a remuneration. the remainder is financed through municipal equity, which typically requires no remuneration and thus helps to keep tariffs low. another mechanism to use debt finance are bots which are a popular financing mechanism for water and wastewater treatment plants and bulk water supply systems in china. under bots, private entities undertake investments and recover their costs through fees for bulk water sale or wastewater treatment charged to the utilities. while the local government or utilities are formally not indebted through a bot, the charges for the services are de facto similar to debt service charges. rural areas in terms of rural and small town infrastructure, channeling funds to the final users through the various layers of local government remains a challenge. according to the world bank, china differs from many other developing countries in that there is not a history of the central government providing large subsidies for the financing of rural water supply and sanitation. instead, there is greater emphasis on self-reliance with rural people using their own contributions and resources to improve their water supply. this financing structure causes poor rural areas to "accurately match their ability to pay with the proper type of systems and level of service", i.e. to choose sanitation solutions that they can afford. according to the world bank, as a result, "china is held up as a model for other developing countries". support for capital costs for water supply is partially provided by the local and/or provincial government. beneficiaries have to provide upfront capital contributions. through world bank financing and central government counterpart financing these upfront capital contributions were reduced, thus making sanitation more affordable to the poor. according to the economist magazine, "some provinces are now bypassing both the prefectural- and township-level governments in order to get funds more directly to rural areas."