Beijing Targets Use of Public-Private Partnerships to Hide Local Government Debt

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The Chinese central government plans to crack down on the use of public-private partnerships by local authorities to conceal their exorbitant debt burdens.

The Ministry of Finance just recently issued its “Notice Concerning Standardisation of Public-Private Partnership Comprehensive 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) (Directive 92), which raises the threshold for the inclusion for the new projects in the project library, as well as arranges for review and reform of accepted projects.

“Over the past three years the PPP sector has seen rapid development and enjoyed the strong support of the market, but in tandem with this rapid development it has been impossible to avoid the emergence of problems involving the use of PPP to conceal financing and other irregular forms of operation,” said Chen Min (陈民), CEO of Beijing Rongbang Ruiming investment Co. (北京荣邦瑞明投资公司) and an expert PPP advisor to the National Development and Reform Commission to Securities Daily.

According to Chen the new Notice primarily seeks to correct problems with the PPP process, and raise the quality of the project library as well as the openness of project information, in order to forestall financial risk and prevent local governments from using PPP to conceal debt.

Chen points out that the Chinese government began first to vigorously promote the PPP model in 2014, as part of efforts to change the role of the state when it comes to investment.

The PPP model has enjoyed explosive growth ever since, with figures from the Ministry of Finance indicating that the nation-wide project library reached 14,220 in total as of the end of September, for an investment amount of 17.8 trillion yuan.

As of the end of October a total of 6,806 projects from the project library had commenced development, for a scheduled investment amount of 10.2 trillion yuan, of which 2,438 projects have been completed, for an investment amount of 4.1 trillion yuan.

“Three years is a small cycle, and the release of Directive 92 at this point is actually a warning with respect to various problems that have emerged during implementation,” said Chen Min.

According to Chen regulators hope the Notice compels various parties to “focus more on standardisation of operation and project management, and avoid the blind reduplication of projects during the process of promotion of the PPP model.

“This will be of benefit to preventing and controlling risk, strengthening market confidence, and advancing the long-term sustainable development of PPP undertakings.”

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