Wang Shouqing: By definition, PPP in China is slightly different from that in other countries. In China, PPP means cooperation between government and social capital (official term, including both private and government-owned companies which have independent debt liability).
Q2: Aside from difference in definition, are there other differences between PPP in China and PPP in western countries?
Wang Shouqing: According to my observation, they also have different understandings about PPP principles and essentials. For example, PPP in China puts more emphasis on process while PPP in western countries is more results-driven. Our financing for PPP projects is mainly based on credit (corporate finance) while in western nations PPP is mainly on project finance. In China, we don't have a unified governing body for PPP. In the initial stage of PPP development, local governments take PPP approach for almost all (if not all) public projects while PPP is just one of various approaches for public projects in the west.
Q3: What are the challenges or barriers that PPP faces in China? In which direction should we make more efforts?
Wang Shouqing: As a relatively new concept in China, PPP has met some problems and challenges. In my opinion, currently the biggest challenge that PPP faces in China is how to achieve value for money while not resulting in contingent debt. More efforts should be placed on the selection of suitable projects for PPP and implementation of PPP projects following PPP principles and best practices so as to realize the central government’s objectives.
Wang Shouqing: It is not my saying but the common sense in PPP domain. This is mainly because that PPP is a long-duration contract between the Public and the Private (i.e. the social capital, ditto) and there are many uncertainties or risks during the contract period, as not anyone could make a perfect contract. Therefore, it requires all the stakeholders especially the Public and the Private to establish a real Partnership just like a marriage.
Wang Shouqing: PPP application is an inevitable trend. However, we have come across the problem of unregulated practices in the execution of PPP projects. For that reason, several government departments in China have issued rectification policies/documents. The purpose is not to bring an end to PPP, but to regulate PPP, to return to the original goals of PPP.
Wang Shouqing: The National Development and Reform Commission (NDRC) organized and provided various training via Center for PPP at Tsinghua University (TUPPP), established jointly by Tsinghua University, NDRC and China Insurance Regulation Commission in April 2016, for PPP related government officers province by province from September 2016 to September 2017 and for NDRC PPP Experts in March 2017. The Ministry of Finance has also provided training for government finance officers since 2014. TUPPP, National Accounting Institute and other organizations also provide various trainings for PPP professionals. TUPPP has also established the China University PPP Alliance (currently with 67 university members) to promote PPP related research and teaching exchange. TUPPP and some universities have also offered PPP related graduate courses and/or degree program.
Wang Shouqing: It is aimed to give investors and financial institutions more independent information on PPP market maturity and risk in various cities in China so as to help them with better investment decision and to stimulate the governments to improve the investment environment.
Wang Shouqing: PPP is to provide public goods/services for people at large, and all stakeholders should take into account the final users (the People). People participation and engagement is therefore important. In addition, PPP is a long-term contract with many uncertainties, hence requires all stakeholders including the Public (many government departments involved) help not only at project level by sharing some risks but also at legal and institutional level by providing sound laws, regulations and policies which are also related to the country’s political system(Politics).
Wang Shouqing: I think this is local government’s requirement. In western or northeastern provinces in China, especially poorer areas, transport like highway and railway is important for economic growth and improvement of life quality. In developed regions e.g. eastern and southeastern China, due to the huge population and improvement of quality of life, there is huge market demand for transportation especially subways, high-speed railway and environmental protection projects.
Wang Shouqing: Among all the identified PPPs, strictly speaking, about 72% do not fulfill completely the requirements of the latest PPP policies by the central government. Most investors are SOE engineering companies and their main objective of investing in PPP is to get the construction contract so that they can get most of their investment back after finishing their construction. However, due to unfair and unsound PPP contracts (resulting mainly from local government’s keenness to launch projects and incapability of consultants etc), they don’t pay much attention to operation.
Wang Shouqing: PPP in China has been cooled down since the end of 2017 and will gradually resume rational and steady level. I guess the number of PPP projects in the future will be 25-30% of total public projects. However, there will also be more disputes in existing PPP projects in following years as those implemented in the past four years are not so normalized (did not follow strictly the central government PPP policies). But I’m confident that the PPP projects will be implemented better from now on than those in last several years as the central government has regulated the existing PPP projects and promulgated some rectification policies. All stakeholders have also learned lessons and accumulated experiences since 2014 and they will be more capable in implementing PPP projects.