Caixin
Oct 30, 2019 02:38 AM
ECONOMY

China Pledges to Accelerate PPP Rules to Define Implicit Debts

The opening ceremony of a PPP urban construction project in Zhangjiakou, Hebei province, Aug. 23. Photo: VCG
The opening ceremony of a PPP urban construction project in Zhangjiakou, Hebei province, Aug. 23. Photo: VCG

China will speed up introducing rules for public-private partnerships (PPPs) to clarify criteria for implicit debts, a senior Finance Ministry official said Tuesday.

The relationship between PPP projects and implicit debts has become a core problem in the development of the PPP market, Zou Jiayi, vice minister of finance, said at a PPP development and financing forum.

In addition to PPP rules, Zou also called for updating operating guidelines on PPP projects, performance and risk management, and research on related policies for tax, accounting, and land and asset management in relation to PPP projects.

Since 2013 China has been aggressively pushing the use of PPPs to increase infrastructure investment while reducing the debt burden on local government.

Under the PPP model, government units cooperate with private investors to build roads, airports, subway lines, utilities and other infrastructure. Local and central governments have promised financial and policy support for such projects to lure private capital. But the programs were often used to further fuel and disguise local government borrowing.

In practice, the notion of PPP has been widely bent by local authorities so that many projects have served as alternative channels for excessive government borrowing while squeezing out private players.

Starting in 2017, China has stepped up scrutiny of PPP borrowing to prevent local governments from using the arrangements to disguise excessive debt. State-owned enterprises (SOEs) and local government financing vehicles (LGFVs) — special-purpose entities set up to raise money for local infrastructure projects — are barred from signing PPP contracts on behalf of local governments, nor can they participate in such projects as private players.

In May, the Ministry of Finance ordered local finance departments to survey local governments’ debt as well as spending on PPP projects. Local governments are required to halt projects that violate borrowing rules and add to local governments’ debt burdens.

From the beginning of 2018 to the end of September this year, 3,586 PPP projects were evicted from the finance ministry’s PPP registration database, Zou said.

As of the end of September, the finance ministry registered 12,180 PPP projects with total investment of 17.3 trillion ($2.45 trillion) yuan, data from China Public Private Partnerships Center shows.

Zou said 99% of local governments’ spending on PPP projects didn’t exceed the 10% threshold above governments’ debt payment capacity, but 19 local governments exceeded the limit.

Zou also proposed innovative PPP financing models, exploring the combination of PPPs and special-purpose bonds, and encouraging the participation of insurance capital in PPP projects.

Contact reporter Denise Jia (huijuanjia@caixin.com)

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