The problem isn't the lack of fresh water sources, the distribution network is riddled with pathogens. This is due to poor design and workers taking shortcuts (not performing sanitation steps to meet deadlines).
Apparently there are desalination plants, but they are not cost-competitive with other freshwater sources, so only industrial developments that are required to provide their own water supply use them. https://www.technologyreview.com/s/601861/chinas-massive-eff...