China seeks private capital in public sector

PPP model to reduce local govts' debt burden

China's finance ministry said Tuesday that it will promote a Public-Private-Partnership (PPP) model in nine public services sectors, including water supply and transport facilities, in a bid to stimulate private investment and reduce local governments' reliance on land sales for their finances.

Local authorities should choose public services projects from existing economic development plans to adopt the PPP model, under which both governments and private firms share investment and profits, the Ministry of Finance (MOF) said in a statement posted on its website Tuesday.

The MOF and the Ministry of Housing and Urban-Rural Development will choose projects every half a year from the PPP projects submitted by local authorities nationwide and recommend them for implementation, the statement said.

The recommended projects will be chosen primarily from nine public sectors, including urban water supply, sewage disposal, roads and bridges as well as public parking facilities, it said.

The two ministries will give priority to projects with transparent pricing mechanisms and steady income streams, it said.

Projects chosen will enjoy a number of preferential policies, including subsidies and financing support, it said.

"The new move will encourage [the entry of] private capital into the public sector to meet the huge demand for public services without hugely raising local governments' debt level," Xiao Peng, a professor with the School of Public Finance at the Central University of Finance and Economics, told the Global Times on Tuesday.

Local governments have typically financed public sector projects with local government financing vehicles (LGFVs), which raise money through bank loans and have accumulated huge debts for local governments.

According to data released by the National Audit Office, local governments had accumulated total debts of 17.9 trillion yuan ($2.92 trillion) by the end of June 2013, up 67 percent from the end of 2010.

Using the PPP model to replace ­LGFVs financing public sector projects is appropriate, and the move to approve projects based on recommendations by the two ministries will speed up the adoption of the PPP model, Xiao said.

"The key issue for the PPP model is offering private capital reasonable returns. The new move will help solve the problem," Jiang Zhen, a research fellow at the National Academy of Economic Strategy under the Chinese Academy of Social Sciences, told the Global Times on Tuesday.

Some public sector projects such as highway construction could offer ­returns through tolls but other ­projects such as building service facilities in public hospitals could not provide steady returns for investors, Jiang said.

The MOF said in the statement that projects with steady income streams will receive priority recommendation, and that projects with differing profit margins could be bundled together under the PPP model to ensure private firms a healthy profit.

In addition, preferential policies such as financing support will be offered to participating private firms to reduce financing and operational costs, the statement said.

"The new move will offer ­investment opportunities for privately owned and foreign enterprises in the public sector and help support the growth of fixed-assets investment," Xiao said.

Data from the National Bureau of Statistics showed China's fixed-assets investment grew by 15.7 percent in 2014 from the previous year, slowing from 19.6 percent in 2013.

"There has always been a shortage of investment opportunities for private capital in public services sectors. The introduction of private capital should boost economic growth," Xiao said.

However, under the PPP model, there should be careful supervision by governments at all levels to ensure the projects offer superior public services without sharp price increases to consumers, Xiao noted.