In Step with Projects

In Pace with Progress

PPP Trends in China

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Author: Wang Yingying, Wang Shouqing     Translator:     Source: PMR
Look back on 2018, the public held a love-hate relationship towards PPP while its value has been generally accepted by the whole society. PPP in China in 2018 showed four characteristics.

(1) The investment slowed down. A period of regulated development of PPP along with a few macro factors, such as the slowdown of economy growth in China, the financial deleveraging from the central government, the regulation cycle of the financial market, all led to a slowdown of PPP development in China.

(2) The legislation had still a long way to go. Since the draft of PPP Regulations was published by Legal Affairs Office of the State Council as early as July 21, 2017, people from various fields have been looking forward to its formal promulgation. However, due to the complexity of the work of legislation, even if the promulgation came to reality soon, it would not be practical to count on the Regulations for the solution of some most critical issues since legislation itself is a process of continuous improvement and refinement.

(3) The government showed firm determination towards stricter regulation of PPP. Since the second half of 2017, especially from November on, the Ministry of Finance has been explicit about the rectification of the implementation of PPP projects and has made significant progress. The National Development and Reform Commission (NDRC) has also been so active and pragmatic on this issue that tons of field investigations have been done. However, an effective synergy is yet to see on the government administration level. Meanwhile, the adjustment of the State Council Departments and their corresponding functions happened to be in progress so the prospective easing policies closely related to PPP were still not clear.

(4) The investment and financing risks began to emerge. The financial market raised the overall standards for loans and risk management. Some reports even indicate that some investors have been encumbered by PPP. The market then was pessimistic about PPP for some time. In fact, there is nothing wrong with PPP but some factors, such as participants with impure motives, non-compliant plans and/or processes, led to the over-advanced and excessive development, generalization, speculation and noncompliance of PPP.

Looking to the future from 2019 on, PPP in China has the following trends.

(1) Stricter regulation. In 2019, most PPP projects will come into operation stage in which the cooperation between the government and enterprises would be seriously tested. Local governments need to pay the fees or subsidies for performance, refine the performance evaluation indexes and enhance supervision, so those companies which have won projects with low prices will face critical challenges.

(2) Contract violation. Local governments’ fiscal capacity and credit will face real challenges. Some of them will have no alternative but to delay the payments or even violate the contracts as a result of their rushing for projects, rough preliminary work, ignoring fiscal risk, underestimating the role of contracts and processes, etc.

(3) Rise of disputes. Disputes about various situations in operation stage begin to appear between local governments and private capital. How to resolve such disputes is critical to the sustainability of the projects, and the central government should introduce more specific policies to lead every stakeholder to proper solutions.
  
(4) Data blue ocean. More standardized governmental regulation and enterprises’ setbacks in investments will force all stakeholders to calm down and deal with PPP projects in a more rational way; meanwhile, the local supervision will have to be strengthened. To handle such an enormous systematic project, the government needs to resort to information measures increasingly. As a result, a data blue ocean market based on data analysis and information methods will begin to form.

(5) New forms of consulting. Some qualified companies tend to think about operation and integrating it with their other businesses as a whole seriously. A portion of financial institutions begin to try authentic project-based loans. Many consulting companies have made a lot of easy money from the service of value for money evaluation, fiscal capacity analysis and project implementation scheme, as well as project contract consulting. In 2019, it is time to test their real competencies and new capacities based on which they provide the service for project implementation, performance of contracts, project supervision and quitting, etc., in operation stage. Those mentioned above will be new consulting demands. The consulting companies, which surged in recent years, are about to differentiate. As a result, the competent ones survive while the unqualified ones drop out, and the demand for overall consulting service will increase gradually.

(6) Rebounce of training. A huge amount of cases and relevant data, which have piled up in the last few years, are yet to analyze and conclude, so that a new opportunity for academic research has come up. The training market will rebound step by step but the standard for training will be higher and higher, and the demand for training will be in a more and more specialized and specified way.

Conclusion 
In short, there are no PPP projects that cannot be done but practitioners who don’t take it seriously. Let’s work together to make PPP in China and prosper.

About the authors:
Wang Yingying, PhD candidate of School of Public Policy&Management of Tsinghua University, Senior Research Assistant at Center for Public-Private Partnership(PPP), Tsinghua University

Dr. Wang Shouqing, professor in Tsinghua University, Chief Expert at Center for Public-Private Partnership(PPP), Tsinghua University

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