Region: East Asia and Pacific
Country: China
Keywords: About PPP, Knowledge Lab
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Document Summary:
Public-private partnerships (PPPs) have been developing in China since the very late 1980s, but the year 2014 might prove to have been a landmark year in this development. In November 2013 the Third Plenum of the 18th Communist Party of China emphasized the decisive role that market forces should play in the Chinese economy (Davis, 2013). The Party’s actions in 2014 confirmed this direction, particularly as it relates to PPPs, resulting in many associated circulars, regulations, declarations and debates. The first section of this paper describes the main drivers that make PPPs attractive in China in the contemporary context; for example, the high levels of local government debt and the daunting needs for funding new infrastructure in the coming decades. The second section discusses some important barriers that might prevent the development of sound, successful PPP projects. In the third and last section, we propose some recommendations to harness the full potential of PPPs in China.
Document Details:
The government of China is looking to PPPs to deliver on the next phase of urban and rural development. The benefits of PPPs can be vast and include, among others, reducing the debt burden on municipalities and mitigating the government’s weaknesses in delivery of public assets. This type of solution is much needed when public authorities recognize that current urbanization trends create enormous challenges in the delivery of adequate public services to the more than 100 million additional residents that will inhabit Chinese cities by 2020.
Public authorities have taken bold steps in creating the appropriate conditions for increasing the predictability of local investments, and this constitutes a clear message to attract private investors. Nonetheless, these attempts do not seem to be enough to overcome the current barriers; therefore, further solutions are still needed. For such solutions to be achieved, municipalities need to prioritize their degree of involvement in infrastructure, develop the appropriate capacities to critically assess infrastructure projects, and strengthen projects’ financial conditions through clear tariff schemes and the use of balanced contracts. Finally, the government still needs to undergo a shift in mindset and start looking at PPPs on the basis of mutual benefits, instead of merely as a way of accessing funding.
Given the many reports describing poor environmental conditions and the harmful consequences of these to the general population, it is imperative for public procurers to transcend the usual approach to PPPs. In other words, they must leverage the benefits of PPPs by pursuing VFM not only at the point of commissioning, but also across the whole asset life cycle. This includes the realization of environmental and social benefits across the procurement vacuum, starting with clear, measurable and achievable specifications in the pre-tender phases and going all the way through to asset disposal at the end of a project’s operational years.
Updated: April 12, 2022