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Is PPP in China embracing a golden age?

Popularity 5Viewed 5288 times 2015-10-4 10:24 |System category:Economy| Public, Private, Partnership

Is PPP in China embracing a golden age?

 

  PPP (Public Private Partnership) has been a buzz topic in China recently. Facing the growing demand of infrastructure, the government hopes that the participation of private entity could both relieve financial constraint and wrought economic efficiency. This February, Chinese National Development and Reform Commission (NDRC) have listed 1043 PPP projects totaling 1.97 trillion RMB in a panoply of public service sector such as transportation, water conservancy, etc. Local news had it that PPP practice in China has entered a golden age.

 

 The enthusiasm of local government runs high. The response from the private sector is lukewarm though. The past two decades have seen a number of miscarried cases. Hangzhou Bay Bridge, once one of the most promising PPP projects and having attracted 17 private enterprises to hold its share, was facing great losses due to government's investment in another bay bridge 50 kilometers away just two years after the its construction. Similarly, Fuzhousecond ring road PPP project was once promised by the government that all cars coming to Fuzhou from the south would need to pass the toll station. But the promise was never kept since the first day of its formal operation. The government’s reneging on the contract has inflicted substantial losses on the investors who resorted to litigation at the end.

 

  Up till now, there has not been a specific law regulating PPP practice in China. The vacuum of legal framework is exacerbated by the short-term drive of government interest. In 1994, the central government undertook fiscal and tax reform to shift a large percent of tax revenue from provincial government to Beijing. As a result, local governments are forced to draw financial resources from other channels to balance its expenditure. PPP thus are pinned high hope on by local governments for relieving financial burden.

 

  While some are accusing that this is merely a cover to pool financial resources, some projects are making the headway. Beijing No.4 subway line,

the first PPP project in urban mass transit sector in China, has been realizing profit since its trial operation in Sep, 2009. Serving the north-south artery in the western urban areas of Beijing, the subway line stretches 28 kilometers with cost of 15.3 billion shared by municipal government, Hong Kong Mass Transit Railway company and Chinese developers. Hong Kong MTR's annual report shows that it has earned a net profit RMB 70 million in 2011 and RMB 200 million in 2012. The lucrative business has certainly stimulated the companys ambition in Chinas infrastructure investment. Recently it has announced its plan to engage in Beijing No. 14 and No.16 subway line, Shenzhen No.6 subway line, Hangzhou No.1 subway line

 

 Some have gained in the widely acclaimed case, others seem not. Last November, Ren Zhiqiang, the CEO of Huayuan, claimed himself to be the victim as the second-largest shareholder of Beijing No.4 subway line project. He complained that the government made all decisions including pricing, investment and line extension which made his investment an almost generous donation.

 

  So, the golden age of PPP in China seems not yet to come without proper regulation and legal protection for investors.

(Opinions of the writer in this blog don't represent those of China Daily.)


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Reply Report mauriciomunhoz 2017-3-6 11:14
This subject is also on the agenda here in Brazil

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