The overall goal of the paper is to better understand the development of groundwater markets in northern China. In particular, this paper focuses on the factors that determine the development of groundwater markets in the attempt to explain their "breadth" (the share of villages in which there are groundwater market activity) and "depth" (the share of water which the average tubewell owner sells to others on a market basis). Based on a survey of 24 randomly sampled villages and 50 randomly sampled tubewells in two provinces (Hebei and Henan Province) in 2001 and a field survey of 68 randomly sampled villages in 4 provinces (Hebei, Henan, Shanxi, and Shaanxi) of northern China in 2004, research results show that groundwater markets in northern China have emerged and are developing rapidly. Groundwater markets in northern China also are shown to be informal and localized and developing in a number of ways that make them appear somewhat similar to markets that are found in South Asia. However, groundwater markets in northern China also differ from those in South Asia in other ways, water sales in China are almost all impersonal and they almost always work on a spot-market, cash bases (that is, there is no price discrimination and there are no share or labor sharing arrangements as are sometimes found in South Asia). Econometric results show that the privatization of tubewells is one of the most important driving factors that encourage the development of groundwater markets. Increasing water and land scarcity and policy interventions also are important determinants that induce the development of groundwater markets.