Although China has reduced its poor population from 250 million in 1978 to 30 million in 2003, an overall reduction in world poverty still depends on progress being made in China because of its huge population. The concentration of poor in western rural regions makes China s task of poverty alleviation complex. Clearer and more transparent analyses on the reasons for poverty are essential prerequisites of any development policy that puts poverty reduction at its heart. The purpose of this paper is to identify causes for being poor in western rural China. It argues that the essence of rural income poverty in the western region is water poverty. Low efficiency of agricultural productivity resulting from poor land quality and uneven distribution of water resources has led to heavy dependence on irrigated agriculture. Irrigated agriculture has played and will play a critical role in creating employment opportunities and alleviating poverty. Existing water shortages and competition for different water utilization make it imperative to enhance the efficiency of water resource management.