Various regions are enthusiastic to launch the public-private-partnership (PPP) financing funds. The Department of Finance of Hunan Province announced it would bolster to establish PPP financing funds on Sept. 18. The People’s Government of Sichuan Province also declared to jointly set up PPP investment funds with social capitals on Sept. 17. Provinces including Henan, Shandong and Jiangsu launched several PPP funds previously.
Experts believe that PPP funds will somewhat stimulate the social capitals’ participation, which is conducive to the implementation of projects. However, the governments should not only show their attitude. The fundamental matter is to relieve worries on social capital to activate investment vitality.
PPP financing funds launched successively
The General Office of the State Council forwarded Guidance on Promoting Public-Private-Partnership in Public Service on May 19. It put forward that the central finance invests and sets up PPP funds. The participation of social capitals in the project will increase the probability of obtaining financing for the project. It will explore to guide and encourage the remaining local financing projects to become PPP projects by measures like replacing subsidies with rewards.
After the document was released, various regions successively introduced policies to support the establishment of PPP financing funds.
The Department of Finance of Henan Province proclaimed setting up funds with 5 billion yuan for PPP projects in June, so as to appeal larger-scale social capitals to take part in the construction of infrastructure and public service facility project.
Shandong Provincial Government decided to found the PPP development funds with a total amount of 80 billion yuan on July 20.
Jiangsu Provincial Government’s PPP financing supporting funds valued at 10 billion yuan was put into operation on Sept. 16.
Sichuan Province also proposed on Sept. 17 that the government sectors of Sichuan Province would initiate PPP funds together with social capitals and join in the PPP projects construction through various means such as creditors’ investment, equity investment, financing guarantee, etc.
The Department of Finance of Hunan issued a document on Sept. 18, announcing that it would back up establishing PPP financing funds with initial amount of 10 billion yuan.
These provinces established the funds through cooperation between governments and financial institutions. Similar cases happed in Henan, Shandong and Jiangsu provinces with government’s investment accounting for 10 percent of the amount of funds. The Department of Finance of Henan commissioned Henan Yizi Urban and Rural Investment and Development Co., Ltd. to contribute 1 billion yuan. The financial institutions and other investors followed the subscription system and the ratio of investment was agreed in contract.
Shandong Provincial Government made 8 billion yuan investment in the funds and strived to attract 72 billion yuan investment from banks, insurance, trust and other financial and social capitals to establish investment funds. Jiangsu Provincial Government initiated to invest 1 billion yuan and financial institutions subscribed 9 billion yuan.
The total amount for the PPP financing funds to be established by Hunan Province is planned to be 10 billion yuan, which will be put in place in three years. Each term of the funds will be composed of investment from provincial finance and fundraising from the social capitals. Enthusiasm of cities, prefectures and counties will be inspired.
As for this, Yang Zhiyong, a researcher from National Academy of Economic Strategy, CASS, indicates that it is worth approving that the local conducts cooperation between government and financial institutions to direct the capitals to where needs it.
Worries on social capital still difficult to be relieved
However, PPP funds with institutional arrangement and implementation do not really relieve the worries on social capital.
Fixed income research report of Minsheng Securities Co., Ltd. collected a series of PPP-related policies, guidance and institutional arrangements issued by Ministry of Finance, the State Council and the central bank since September 2014, and found that these policies’ designs on income guarantee are better than arrangements on risk allocation. There are still no proper solutions for issues on how to allocate the risks for the two cooperative parties, or how to solve the risks on social capital caused by the governments’ behaviors.
The journalist also found the same problems in PPP financing fund schemes. For example, scheme of Henan Province mainly describes establishing principles, investment and earnings of the funds, almost without anti-risk measures. And very simple risk control measures are put at the end of the scheme of Jiangsu Province, without clear details.
Li Yunfei believed that it does not lack of PPP projects with profitable prospects, however, their progresses are very slow, mainly as the governments have broken their promises before, or designs of the risk allocation mechanism were not reasonable or incomplete, which caused failures in the projects, with worries on social capital.
Li said: “It can improve the return rate through PPP capital input, especially lowering social capital input. However, higher return rate is still vain, if the risks are not controlled well.”
Researcher of National Academy of Economic Strategy, Yang Zhiyong, believed that it is a good wish to introduce PPP financing fund for guidance and support, however, the most urgent problems to be solved for social capital to really implement PPP projects are about how to avoid potential risks caused by the changes in policies of local governments and how to guarantee the rights and interests of social capital when the risks occur.
(Translated by Jelly Yi & Vanessa Chen)
Experts believe that PPP funds will somewhat stimulate the social capitals’ participation, which is conducive to the implementation of projects. However, the governments should not only show their attitude. The fundamental matter is to relieve worries on social capital to activate investment vitality.
PPP financing funds launched successively
The General Office of the State Council forwarded Guidance on Promoting Public-Private-Partnership in Public Service on May 19. It put forward that the central finance invests and sets up PPP funds. The participation of social capitals in the project will increase the probability of obtaining financing for the project. It will explore to guide and encourage the remaining local financing projects to become PPP projects by measures like replacing subsidies with rewards.
After the document was released, various regions successively introduced policies to support the establishment of PPP financing funds.
The Department of Finance of Henan Province proclaimed setting up funds with 5 billion yuan for PPP projects in June, so as to appeal larger-scale social capitals to take part in the construction of infrastructure and public service facility project.
Shandong Provincial Government decided to found the PPP development funds with a total amount of 80 billion yuan on July 20.
Jiangsu Provincial Government’s PPP financing supporting funds valued at 10 billion yuan was put into operation on Sept. 16.
Sichuan Province also proposed on Sept. 17 that the government sectors of Sichuan Province would initiate PPP funds together with social capitals and join in the PPP projects construction through various means such as creditors’ investment, equity investment, financing guarantee, etc.
The Department of Finance of Hunan issued a document on Sept. 18, announcing that it would back up establishing PPP financing funds with initial amount of 10 billion yuan.
These provinces established the funds through cooperation between governments and financial institutions. Similar cases happed in Henan, Shandong and Jiangsu provinces with government’s investment accounting for 10 percent of the amount of funds. The Department of Finance of Henan commissioned Henan Yizi Urban and Rural Investment and Development Co., Ltd. to contribute 1 billion yuan. The financial institutions and other investors followed the subscription system and the ratio of investment was agreed in contract.
Shandong Provincial Government made 8 billion yuan investment in the funds and strived to attract 72 billion yuan investment from banks, insurance, trust and other financial and social capitals to establish investment funds. Jiangsu Provincial Government initiated to invest 1 billion yuan and financial institutions subscribed 9 billion yuan.
The total amount for the PPP financing funds to be established by Hunan Province is planned to be 10 billion yuan, which will be put in place in three years. Each term of the funds will be composed of investment from provincial finance and fundraising from the social capitals. Enthusiasm of cities, prefectures and counties will be inspired.
As for this, Yang Zhiyong, a researcher from National Academy of Economic Strategy, CASS, indicates that it is worth approving that the local conducts cooperation between government and financial institutions to direct the capitals to where needs it.
Worries on social capital still difficult to be relieved
However, PPP funds with institutional arrangement and implementation do not really relieve the worries on social capital.
Fixed income research report of Minsheng Securities Co., Ltd. collected a series of PPP-related policies, guidance and institutional arrangements issued by Ministry of Finance, the State Council and the central bank since September 2014, and found that these policies’ designs on income guarantee are better than arrangements on risk allocation. There are still no proper solutions for issues on how to allocate the risks for the two cooperative parties, or how to solve the risks on social capital caused by the governments’ behaviors.
The journalist also found the same problems in PPP financing fund schemes. For example, scheme of Henan Province mainly describes establishing principles, investment and earnings of the funds, almost without anti-risk measures. And very simple risk control measures are put at the end of the scheme of Jiangsu Province, without clear details.
Li Yunfei believed that it does not lack of PPP projects with profitable prospects, however, their progresses are very slow, mainly as the governments have broken their promises before, or designs of the risk allocation mechanism were not reasonable or incomplete, which caused failures in the projects, with worries on social capital.
Li said: “It can improve the return rate through PPP capital input, especially lowering social capital input. However, higher return rate is still vain, if the risks are not controlled well.”
Researcher of National Academy of Economic Strategy, Yang Zhiyong, believed that it is a good wish to introduce PPP financing fund for guidance and support, however, the most urgent problems to be solved for social capital to really implement PPP projects are about how to avoid potential risks caused by the changes in policies of local governments and how to guarantee the rights and interests of social capital when the risks occur.
(Translated by Jelly Yi & Vanessa Chen)
Latest comments