Low agricultural water fee collection rates are a problem commonly faced by many developing countries and this is a problem faced by China as it enters the new century. There are two main problem-solving strategies used in different areas of China: increasing the water fee collection rate, or exempting people from paying the water fee. In those areas where the first strategy is pursued, local governments adopt multiple measures to improve collection rates, such as introducing water user associations and enhancing the transparency of irrigation management. Exempting people from paying a water fee is a new strategy, adapted to China's rapid economic growth and social transition. In those areas that are exempting people from paying water fees, the financial sustainability of irrigation facilities has to be taken seriously and new farmer-level water-saving mechanisms need to be explored. In this paper, China's agricultural water fee collection dilemma is analysed from both a practical and a theoretical perspective. It is argued that China should not simply adopt a single agricultural water fee collection model and that each local government should explore policies that are appropriate for the local situation.