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Chinese government will promote PPP to boost private investment

Zhang Yue
Updated: Jul 8,2016 9:58 PM

The Chinese government will intensify efforts to promote more standardized, rapid development of public-private partnerships (PPPs), especially for projects in the public service sector. It’s part of the government’s effort to encourage private investment across the country.

New measures will be introduced to encourage PPP, especially in the public service sector, as was decided at the State Council’s executive meeting chaired by Premier Li Keqiang on July 7.

Premier Li said that while the country has seen much progress in promoting PPP in the past two years, a variety of institutional barriers still hinder PPP development.

“We need to work hard to address these problems in PPP promotion, for example, government functions overlapping, and policies and legislations not yet ready. Only by solving them can we drive investment more effectively,” Premier Li said.

Taxation policy will be tailored to better suit the financing system of PPP. The meeting also called for solid research prior to PPP projects’ implementation.

The Premier raised the idea of PPP development at a State Council executive meeting in October 2014, suggesting that doors should be open to social capital, especially private capital, in more areas.

China’s private investment growth has been slowing in the first half of 2016, triggering concerns from central government departments. The State Council just finished a sweeping examination of reasons for such slowdowns across the country, from May to June. It was noticed during the examination that, although many private companies are interested in PPP projects, they are reluctant in action for fear that their interests will be affected.

“At the moment, private investment is slipping, and PPP will serve substantially in driving private business development,” the Premier said.

Another major issue with PPP in China is the potential imbalance in the market of access between State-owned companies and private investors. Although the doors of PPP participation are open to both, local governments more often than not tend to work with State-owned companies rather than private investors.

Hence, there is a pressing need for reliable regulations to shore up PPP development, which was also discussed during the meeting. The idea of PPP is not a concept born in China, and there is so far no regulation or legislation that addresses issues with PPP projects in China.

In June, the Ministry of Finance announced that procedures for PPP legislation had begun, and a draft has been circulated around related departments for consultation.

Premier Li urged accelerating the legislation for PPP with clear accountability.

The year 2016 has seen the implementation of more than 600 PPP projects, accounting for 23.8 percent of signed PPP contracts. Statistics from the Ministry of Finance show that 39 percent of them have private business partners.