Chao Lake, the fifth largest lake in the People’s Republic of China (PRC), is the main source of raw water for the industries and cities in the watershed. The lake also supports traditional fishing, agriculture, and tourism activities. The availability of rich mineral deposits, sufficient energy resources, skilled manpower, and access to international ports through the Yangtze River has transformed Hefei, the capital of Anhui Province, and the other cities surrounding the lake into major centers for heavy industries manufacturing iron and steel, chemicals, machineries, plastics, and textiles. Because of the discharge of untreated domestic and partially treated industrial wastewater into the drains, streams, and rivers flowing into the lake, the lake water quality has become unsuitable as a drinking water source although it continues to provide part of the public water supply system in Hefei and other cities. Through Canadian International Development Agency (CIDA) assistance, Anhui Environmental Protection Bureau (AEPB) completed the Chao Lake Watershed Management study in December 1995, which estimated that investments of at least $963 million over a 15-year period are required to upgrade the lake water quality. The Australian Government has provided loan assistance for the construction of a 150,000 m3/day centralized domestic wastewater treatment plant for Hefei City. The Asian Development Bank (ADB) provided a technical assistance in 1994 to identify projects in the watershed to reduce the pollution load in consonance with the action plan promulgated by the Anhui Provincial Government and the AEPB for the 1996-2000 period.