Despite continuous investment and various efforts to control pollution, urban water environments are worsening in large parts of the developing world. In order to reveal potential constraints and limitations of current practices of urban water management and to stimulate proactive intervention, we conducted a material flow analysis of the urban water system in Kunming City. The results demonstrate that the current efficiency of wastewater treatment is only around 25% and the emission of total phosphorous from the city into its receiving water, Dianchi Lake, is more than 25 times higher than its estimated tolerance. With regard to the crisis of water quantity and quality, the goal of a sustainable urban water environment cannot be attained with the current problem-solving approach in the region due to the technical limitations of the conventional urban drainage and treatment systems. A set of strategies is therefore proposed. The urban drainage system in Zurich is used as a reference for a potential best-available technology for conventional urban water management (BAT) scenario in terms of its low combined frequency of sewer overflow.