Abstract: China is currently at a critical stage of transitioning its development model. As an important industry supporting national economic security and social stability, the separation reform of natural monopoly links and competitive links in the water conservancy sector has gradually become an urgent need to improve water resource utilization efficiency and promote sustainable economic and social development. By sorting through the evolution of policies, this review examines the change in the water resources industry policy during the transition from a planned economy to a market economy and discusses the independent operation of the natural monopoly links and the market-oriented reform paths of the competitive links in the water conservancy industry. The results show that the current water resources industry faces several issues and challenges in the reform process of separating natural monopoly and competitive sectors, including unclear pathways for separation, imperfect elevate reform concepts, the lack of coordination and adaptability in regulatory mechanisms, as well as the imperfections in market-oriented operational mechanisms in competitive sectors. In response to the above issues, this paper proposes specific improvement suggestions from the perspectives of clarifying the definitions of natural monopoly and competitive sectors, establishing correct reform concepts, improving the regulatory mechanism and improving strategies for market-oriented reform in competitive sectors.