As the world’s largest urban area in both size and population, the rapid development of the Pearl River Delta (PRD) during past three decades has been accompanied by worsening water problems. This paper examines the water-economy nexus of the PRD from the perspectives of both water use and water quality between 1999 and 2015, with a Logarithmic Mean Divisia Index decomposition model as well as an Environmental Kuznets Curve model, in order to assess the sustainable transition of the area. The results show that in this period, while the water dependency of economic development went down by a significant extent, the efficiency gains did not prevail over problems caused by economic scale expansion. However, at the city level, the 2008 financial crisis stimulated an economic transformation of the main economies from being scale-dominated to being efficiency-dominated. From 2009 to 2015, the sewage decreases driven by water dependency of Guangzhou, Shenzhen, and Dongguan outweighed the sewage increases driven by economic scale. While sewage discharge increased, the river water quality of the PRD kept improving. We found an inverted “U”-shaped relationship between GDP per capita and water quality of the PRD, with GDP per capita = ¥14,228.27 as the inflection point for river water quality. Once dubbed the “factory floor” of the world, the PRD has moved into a less environmentally impactful phase of development, with more expenditure on environmental protection and policy reform. However, given the huge and ever-increasing economic and population scales, ensuring a sufficient and safe water supply through industrial recycling and public education, along with even further pollution abatement, will be particularly important.
