An estimated 2407 public-private partnership projects worth approximately 2.39 trillion yuan have been put on the chopping block following a “clean-up” of the Chinese government’s PPP project library.
In November last year the Ministry of Finance issued the “Notice Concerning Standardisation of Public-Private Partnership Integrated Information Platform Project Library Management” (关于规范政府和社会资本合作（PPP）综合信息平台项目库管理的通知) (Circular No. 92), which mandated a “clean-up” of the PPP project library by local governments by the end of March 2018.
Circular 92 called for the “concentrated clean-up of projects that have already entered the project library and are subject to circumstances including lack of suitability for the continued adoption of the PPP model for implementation; failure to satisfy standardised business requirements, illicit or illegal debt-raising guarantees, or failure to make information public in accordance with regulations.”
According to the Circular any such PPP projects should be cancelled and removed from the government’s library of projects.
Beijing-based PPP big-data consultancy Bridata estimates that a total of 2407 projects have been cleared from the project library, worth an investment sum of approximately 2.39 trillion yuan.
Zhang Yu (张宇) a PPP expert with the National Development and Reform Commission, points to four key reasons for project cancellation – low returns on public benefit projects that are dependent upon government spending; projects having strong ties to land rectification or commercial real-estate; problems with local government finances, and projects failing to comply with regulations.
The number of cancelled projects represents a sizeable percentage of PPP projects on the books around China.
“Our understanding is that the situation differs significantly between provinces,” said Qi Zhengtao (戚政韬), an analyst with investment bank China International Capital Corporation, to 21st Century Business Herald.
“In provinces with the largest number of rescinded projects the percentage of projects cancelled is as high as 30%…the overall average is around 15%.”
The cancellation of PPP projects as mandated by Circular 92 has also created the dilemma of how to deal with those projects for which agreements have been executed and funds put in place.
“We face very many legal problems here,” said Zhao Quanhou (赵全厚), chair of the financial research centre of the China Academy of Fiscal Sciences. “For example, if everyone sustains losses during the initial period, how are the costs divided? For this we need to look at the original PPP contract, and who bears policy risk…which is usually borne by the government, in order to make it easier for private capital to withdraw.”
Zhang Yu further points out that the conclusion of the clean-up period mandated by Circular 92 does not mean that there is no further risk of projects already entered in the PPP library being scuppered in future.
According to Zhang PPP projects are phase-based undertakings, and failure to comply fully with regulations at any stage of a project might still spell its downfall.
“At each stage, failure to satisfy requirements could definitely mean withdrawal,” said Zhang.”