Public-private partnership (PPP) is embracing a new round of upsurge. It is learnt that first draft of relevant rules about PPP has been finished and the Ministry of Finance (MOF) will accelerate launching the new rules. New rules of asset securitization of PPP projects will be also unveiled soon, which will boost multi-layer capital market system to better connect with PPP projects. Industry experts point out that as implementation of PPP projects is beefed up and asset securitization of PPP projects is quickened, preventing financial risk and strengthening information disclosure have been an urgent task. With policy improved and supervision strengthened, a great number of PPP projects will be put in place, which will continuously support China’s economy in 2017.
PPP market sees 8 features
According to statistics from the MOF, the number of PPP projects recorded in the PPP project library of comprehensive information platform reached 12,287 by the end of March. Investment amount of these projects totaled 14.6 trillion yuan. Specifically, 1,729 projects, or 34.5 percent of total projects, with investment amount of 2.9 trillion yuan have been finalized.
“The pattern of PPP market has taken initial shape at present.” There are 8 characteristics of PPP market, said Jiao Xiaoping, director of China Public Private Partnerships Center under the MOF. Firstly, the PPP mode covers a wide range of fields such as energy, communication and transportation and governmental infrastructure. Secondly, green low carbon and social projects have been taken seriously. The number and investment amount of green low-carbon projects in the project library register 58.7 percent and 40.5 percent. Thirdly, middle and west regions see faster progress. 7,699 projects with investment amount of 8.5 trillion yuan in 6 provinces in middle region and 12 provinces in west region have been recorded in the project library, accounting for 69 percent and 63 percent of total projects and total investment amount respectively. Fourthly, proactive fiscal policy plays an important role. Fifthly, quality and efficiency of public service supply have been improved. Sixthly, as implementation of projects is accelerated, there’s huge potential for private capitals to join in. Seventhly, it gives rise to public service supply. Lastly, the function of demonstration project as lighthouse is prominent.
Jiao pointed out that PPP mode should be compulsorily adopted in sewage and garbage industries, and PPP mode should be encouraged so as to deepen the reform.
Correct bad trend of projects in disguised form of PPP mode
With implementation of PPP projects accelerated, problems derived from this are also under scrutiny.
“Financing in the name of PPP projects which the government pays the bill in the end should be curbed.” Jiao added that financing in disguised form of PPP projects or other non-standard phenomenon still exist. There is risk in the market that bad money drives out good. Preventing risk is an important task currently, and attention should be paid to innovation and risk in next step.
In the opinion of Bai Jingming, vice president of the Chinese Academy of Fiscal Sciences, PPP mode is absolutely not a financing behavior. It is not the government raising funds from social capitals or social capitals raising funds from the government. Instead, it is a kind of joint investment and risk should be shared. Cooperation between the government and social capitals must be fair and isn’t one-way investment behavior.
Attention should be paid to three fields while promoting PPP mode, said Shamshad Akhtar, an undersecretary-general of the United Nations and executive secretary of the UN Economic and Social Commission for Asia and the Pacific. First of all, government should establish perfect legislation environment so as to advance participation of social capitals via building policies and systems related to PPP. Secondly, government should optimize and improve ways of screening PPP projects and provide preferred supports to them. Thirdly, government should improve governance while propelling PPP and facilitate healthy competition.
Fu Junyuan pointed out that focus should put on several problems arising from promotion of PPP. Firstly, contractual capacity of government should be strengthened. Secondly, credit policy is not very clear yet. Thirdly, cutthroat competition results in low project earnings. Fourthly, financing channel isn’t diversified. The fifth and the sixth problem are about restriction over operation period and fiscal expenditure respectively. Fu thought that the government should move quicker in PPP legislation, solicit opinions from social capitals when formulating policies, and further expand financing channels of PPP projects.
Sun Xiaoxia from the MOF recently said that the MOF will stick to the principle of holding to the baseline and preventing risk to regulate PPP projects which have some non-standard operations. It will gradually correct bad trend of projects in disguised form of PPP mode prevent government debt risk so as to boost sound development of PPP mode.
Strengthen information disclosure
As one of the most important way of driving accelerating implementation of PPP projects, asset securitization of PPP projects is being quickened.
After the first batch of asset securitization of 4 PPP projects was finalized on March 10, the second batch of 8 PPP projects was unveiled recently, which was recommended by National Development and Reform Commission to China Securities Regulatory Commission.
Many experts believed that strengthening information disclosure of PPP project has already been an urgent task at present.
Xu Guangzhou from National Association of Financial Market Institutional Investors indicated that previously the association and financial participants studied how to make resources of interbank market and multi-layer capital market systems better connect with PPP projects. If they do further research on information disclosure, the interbank market will play a more important role in pushing forward implementation of PPP projects in the future. Pilot was carried out in bond note, revenue bond and asset-backed note previously. More projects will be put in place in the second half of this year. The government should deepen work related to information disclosure and make good use of resources of interbank market to advance implementation of projects.
“2017 will be the first year of an era for PPP and innovation of financial market.” Trial on the first batch of asset securitization of PPP projects in the first quarter was mainly about building an investors’ demand-oriented disclosure system of PPP projects, said Liu Weimin, director from Citic Securities Company Limited. As for information disclosure of PPP projects, he hoped to set up multi-layer information disclosure system. The system should include compulsory disclosure and voluntary disclosure, and investment decision function of information and information release function should be separated. He suggested prudentially disclosing the PPP-related information which is predictive, and the third-party assessment institutions should be introduced to reasonably supervise information about key investment forecast.
Translated by Vanessa Chen
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