0 Introduction
    In March, 2005, Chinese Premier Wen Jiabao chaired a State Council executive meeting to study the development of power industry and pointed out that it was necessary to adjust the power structure, vigorously develop hydropower, optimize the development of coal-fired power, actively promote the development of nuclear power, appropriately utilize natural gas for power generation and encourage new energy power generation. It is a scientific thesis as to how China's future energy development can go in harmony with environmental protection. Making good use of the abundant hydropower resources is inevitable in China's energy policy making. Ministry of Water Resources emphasizes that rural hydropower constitutes an important part in people’s livelihood. It has a bearing on the improvement of living condition of the masses, construction of a harmonious society and a new countryside. It is a vital move to implement the Scientific Outlook on Development. It should be made key issue during the process of studying and practicing the Scientific Outlook on Development to analyze and solve the problems crippling the scientific, harmonious and sustainable development of rural hydropower industry. In accordance with requirements of the central government and the Ministry of Water Resources, I would like to give a brief report as to the relationship between the government and market from the two aspects of the management of China's rural hydropower equipment manufacture industry and the research and development system.

    1 Equipment manufacture industry management
    Under the existing provisions, a new SHP equipment manufacturer can be established, as long as the business administration department registers and licenses it. Due to the shared technology, low investment for the beginning period, low threshold for access and the craze for SHP investment in the past few years, small and medium-sized SHP equipment manufacturers emerge like mushrooms within a short time, most of which are derived from the restructuring of state-owned enterprises. For example, over 10 enterprises are derived from the former Hangzhou Hangfa Power Generation Manufacturer. This batch of new manufacturers varies greatly from each other. Some of them are short of advanced equipment, skilled technicians and precise testing system. Others are lacking in personnel of drawing and design. The drastic increase in the number of enterprises triggers a round of price battle, which leads to the "disorder".

    The aftermath brought by the "disorder" includes poor quality of equipment, low efficiency of runners, gear noise, a short working life, big noise of generators and poor anti-erosion performance. Some of the power stations even can't be in operation for several years after its completion, which not only brings direct economic losses to the investors, but also results in an enormous waste. The disorder in equipment manufacture industry also has an impact on the export. Foreign businessmen are always at a loss about China's equipment market. A consultant from the World Bank suggested that a directory of China's SHP equipment manufacturers should be compiled to include all the qualified manufacturers, thus providing reference for customers. However, there is no certification and rating system for China's SHP manufacturers, so it is quite difficult to define whether it is qualified or not.

    One of the reasons causing the above-mentioned problem is that there is a lack of government supervision for China's SHP equipment industry. In the institutional reform years ago, the Ministry of Machinery was removed, and the management of SHP equipment industry was taken over by the industry association. However, despite the great efforts the association made, there were still limitations. It couldn't formulate compulsory market rules so that supervision was weakened. Some people hold that the market economy is the survival of the fittest. Unqualified factories will eventually be eliminated by market forces, and it will be at a high price even international reputation. In my opinion, it is completely up to the market to decide whether we should step up government supervision in the SHP equipment industry or not. This is the fundamental difference between the capitalist market economy and socialist market economy with Chinese characteristics. Only when we understand this can the worsening situation of SHP equipment manufacture industry be radically reversed.

    To standardize the SHP equipment market and enhance the degree of supervision, it is suggested that the government formulate some administration rules and establish related certification system, including production license certification and enterprise rating certification, etc. At the same time, mandatory market rules should also be made. For example, the market admission regulation should be made to prevent the equipment with poor performance from getting access to the market. When it comes to questions like who and how to do the certification work, regulations should be formulated to elaborate on it. The industry association can offer some help, including providing information about quality issues and compiling a catalogue of the qualified manufacturers.

    In a word, the government should join in the management of the SHP equipment market and create a sound market environment.

    2 R & D system
    Recently, a report of the European Small Hydropower Association pointed out that it is a prevailing wrong idea that hydropower technology has
already been advanced and needs no further study. This wrong idea has impacted the development and investment of new hydropower technology. Moreover, this idea has also been quite common in China.

    In recent years, the government invests little in the small hydropower research and development. Although the state has launched the projects of "rural electrification by hydropower" and "SHP for fuel-wood", the fund is basically used for infrastructure, not research and development. Besides, there are some problems with the R & D system. The reform has converted some of the R & D institutions into enterprises. National Research Institute for Rural Electrification (Hangzhou Regional Center (Asia-Pacific) for Small Hydropower) specializes in hydropower policy and standard formulation and new technology study. The institutional reform in recent years has also influenced the sustainable development of HRC.

    Some people hold the view that R & D can be entrusted to enterprises and universities. As far as I am concerned, although enterprise and universities are capable of it, they are still greatly different from institutes. Especially for SHP equipment manufacturers, they are mostly small in scale and weak in R & D. Besides, they can't afford to buy expensive research and testing facilities. Currently, few of China's about 100 equipment manufacturers can design runner of turbines on their own. The development of new products and core technology can't make significant breakthrough. Still, there are difference between institutes and universities. Institutes are task-oriented and bear a clear aim of serving the government and industry, while universities are more innovative in research. Institutes are so tightly organized that it is easy to carry out new technology development and policy and regulation formulation. When the country is in urgent danger, the advantages of institutes stand out. For example, in the May 12th earthquake, researchers play an important part in the dam safety management and in dealing with quake-formed lake. Therefore, enterprise, university and institute are different and irreplaceable. The reform of R & D system should take the Scientific Outlook on Development as guideline. The state should step up its input and support for research institutes. It is quite important in deepening the current reform in R & D system and solving the existing problems.

    Actually, there are many things to study as to SHP, like policies, standard system, research and development and management. For example, the issue of environmental protection of SHP is not only an issue of SHP development but also an issue of people's livelihood of common concern. It brings new challenges to rural hydropower development and reflects the backward and poor management of the government in the field of small hydropower. As to the issue of environmental protection of SHP, there are various matters to study, such as the implementation of the system of compensation for the use of water resources. There is still a big gap between China and developed countries in SHP technology. The focus of SHP development is different for countries with different degree of economic development and industrialization. But the key issue is the concept. The European Small Hydropower Association reports that from 2000 to 2006, the European Commission and Swiss Federation has invested a lot in the study of ultra-low-head turbine technology. With the constant development of SHP, high-head power stations are decreasing. Besides, some people hold that low-head stations are environmentally friendly. So low-head stations have large room for development.

    In order to raise the technological level of the SHP industry, it is advisable that the government should strengthen input in the talent and researcher cultivation, deepen the reform of R & D as well as step up the administration. In order to make good use of the limited financial resources and avoid duplication of construction and investment, it is advised to speed up the construction of the national SHP engineering research center to provide technological support and service for the SHP industry and realize the maximization of resource utilization.

    All in all, the development of rural hydropower should adopt the Scientific Outlook on Development. The government should function its role to create a sound market environment. The enterprises should strengthen the quality of products and explore the potential market in accordance with law. The research institutes should play an active role in the technological advancement. And the industry association should provide an information platform and promote cooperation and exchange. It is necessary to build under the supervision of the government a system for rural hydropower development featuring openness, fair competition and standardized management. It is important to bring the advantages of socialist market economy with Chinese characteristics into full play to promote the sound, rapid and sustainable development of rural hydropower industry including resource exploration and management and equipment manufacturing as well as to prevent the full liberalization and economic recession witnessed by the capitalist market economy.