It is a challenge for China to address its serious water resource problems, and inefficient water use. Improving water use efficiency is the key solution to dealing with this issue. There are two basic mechanisms practiced in the world aiming to pursue water conservation, i.e. administrative and market-based management pattern. Water as an irreplaceable resource with many attributes, either public or market-based management mechanism has its disadvantages. In order to avoid the inherent "administrative failure" or "market failure", this paper emphasizes the importance of changing traditional water resource management mechanism to establish a mixed mechanism of public and market water management based on Chinas conditions and experiences from developed countries. Three key aspects of this combined mechanism are identified in this paper, i.e. recognizing and managing water rights to promote efficiency, strengthening effectiveness of government management to lower transaction cost and encouraging water user participation to increase flexibility. Detailed information on implementing of this combined mechanism in China is given in the end.