27% of Public-Private Partnerships at Risk of Removal from Project Library

The latest official data indicates that over a quarter of public-private partnerships in China’s official project library are at risk of removal in future, while the difficult and cost of securing financing for projects have increased due to heightened risk concerns on the part of banks.

Recent updates to the Ministry of Finance PPP Centre’s PPP Project Library, indicate that as of 23 April a total of 1695 projects had been withdrawn from the library, representing investment of 1.8 trillion yuan, while another 2005 projects are subject to rectification, involving an investment sum of approximately 3.1 trillion yuan.

There are currently 7264 projects in China’s PPP library, which means that 18.9% of projects have previously been withdrawn, while another 27.6% of projects require rectification, meaning that they remain at risk of removal in future.

The changes follow the release of the “Notice Concerning Standardisation of Management of the Public-Private Partnership Integrated Information Platform Project Library” (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) in November 2017, which set a deadline of 31 March 2018 for the “concentrated clean-up” of PPP project inventories by provincial governments.

Given the immense number of projects on the books as well as their complexity, however, analysts forecast that clearance of projects from the library would continue after the cut-off date.

On 24 April MOF issued the “Notice Concerning Further Strengthening Standardisation and Regulation of Private-Public Partnership Demonstration Projects” (关于进一步加强政府和社会资本合作(PPP)示范项目规范管理的通知) (Caijin [2018] No. 54), following the examination and processing of 173 demonstration projects involving a total investment sum of 670.3 billion yuan.

30 projects were withdrawn from the demonstration project list as well the National PPP Integrated Information Platform Project Library (全国PPP综合信息平台项目库), while another 54 were removed from the demonstration project list, yet retained within the library.

As a result of this cull of PPP as well as the possibility that over a quarter of entries in the official library could be removed, financing for projects has become more difficult and expensive.

While banks were previously willing to provide large volumes of capital at low rates for PPP projects, the E20 Research Institute’s tracking of PPP financing costs points to a sharp increase since the start of 2018.

They found that while the cost of a loan with a maturity of five or more years for high-quality PPP projects was around 10% either above or below the benchmark rate in 2017, by the start of 2018 this figure had risen to 10 – 30% above the benchmark.

In addition to greater cost, Chinese banks have also become increasingly reluctant to provide financing for PPP projects given that so many are at risk of suspension.

“Communications between the province-level bank and the finance department primarily concern the extent of government participation in PPP projects, whether or not there are guarantees, and whether or not the government will back the development of the project over the long-term,” said one executive at the second-tier branch of major bank in northern China to 21st Century Business Herald.

“The government does want to intervene in the market excessively, and nor can it, but from a risk control perspective, without government intervention the bank isn’t willing to become involved.

“The current state of affairs is that the province-level bank has not approved any projects, and the regional offices are only at the stage of looking into matters, without any substantial progress.”

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