Pascual et al. (2010), the relationship between equity and efficiency in PES emphasise the role of the institutional setting, social perceptions about economic fairness (or distributive justice of the payments), uncertainty and interactions between agents, including power relations. This is essential for Chinese eco-compensation, considering the centralised government system and existing close interrelations among the agencies. The central government should provide policy guidance, a legislative basis and financial support for local governments to establish PES schemes. It would also have to guide local governments in formulating, in the first place, country-wide and regional-wide, inter-watershed PES schemes. It is widely accepted that local governments are the main actors in formulating and implementing PES schemes. 2) Relations between the government and the market. Both the government and the market play an important role in establishing compensation schemes. However, China’s policy-makers are still new to PES and market-based instruments in general. Based on the ecological conservation status and the market development in China, the government plays a key role in establishing PES schemes, including policy and law, and provides support for large-scale compensation. 3) Relations between PES and poverty alleviation. PES differentiates from poverty alleviation, and does not further the purpose of social equality and narrowing the gap between the rich and the poor (Li and Liu, 2010). Many assumed that PES will contribute to poverty reduction by making payments to poor land users, while others have warned of the potential dangers (Pagiola et al., 2005; Grieg-Gran et al., 2005; Wunder, 2008). However, PES schemes can be used to give rural dwellers a new social role as ecosystem service providers for ecosystems under stress. PES can thus serve to help them achieve these goals while financing the transition to more profitable and ecologically-friendly production systems. 4) Relations between “blood generating” and “blood transmitting”. A “blood-generating” kind of compensation should be encouraged by initiating eco-conservation and capacity rising programmes, while a “blood-transmitting” kind of compensation could be applied for ordinary people. However, as far as the multifunctional role of agriculture is concerned (Van Huylenbroeck et al., 2007), once ordinary people, such as farmer households, receive compensation, they would be able to participate in production and trading activities to generate income for a substantial livelihood, which is important for the long-term conservation of ecosystem services. 5) Relations between integrated and sectoral platforms. An integrated PES platform dominated by the government would have to be established to ensure effective operation. However, various platforms should be encouraged at the local levels to explore various types of compensation. For instance, the private sector could have a potential role to play in PES. As a means to bring in the private sector, the government could start making a stepwise transition from fully public to public-private partnerships and private initiatives in a way that makes sense in the Chinese context. A legal framework will first need to be provided that will facilitate individual companies to make small PES deals.