This paper provides a review of the water environment problems faced in China and a comparison with the European experience in dealing with such issues, with an attempt to emphasize the challenges in China. The paper also summarizes various studies in China to highlight the severity of water pollution problems faced by regulators, polluters and the general public. China’s water situation can be characterized by insufficient quantities of water, uneven distribution of water spatially and temporally, as well as poor water quality. Water pollution in China has spread from point source to non-point source, from fresh water to coastal water, and from surface water to groundwater. From the management and technological experience from EU, including water framework directive, water price system, desalination and groundwater recharge technologies, and from the analysis of water environment problems and management system in two regions, we could come to the conclusion that water price, water market and water tax could be introduced to China for water environment regulations. Moreover, it is necessary to establish a reliable risk assessment system for water quality, human health and ecological safety.