The Central Government has been encouraging public-private partnership (PPP) to promote private investment in infrastructure and public projects since 2014.

The investment and projects under various PPP arrangements experienced a boom across China in the years that followed. As of September 2017, the number of PPP projects under planning and development had reached 6,778, with a total investment of 10.1 trillion yuan ($1.55 trillion). China has become the largest PPP market in the world.

But the PPP boom has also brought problems. Some local governments are simply using PPPs as a means of financing, not taking full advantage of the new pattern to advance supply-side reform. The risk of debt is rising, especially, due to a lack of supervision.

Against this backdrop, the Ministry of Finance issued a new policy in November 2017 to regulate PPP arrangements and improve the quality of PPP projects. It is expected that policymakers will shift their focus from the number of PPP projects to quality. Watchdogs will strengthen regulation and supervision of PPP arrangements and projects in 2018.

According to the ministry, the watchdogs will tighten risk control and enhance supervision of governmental payments for PPP projects as well as taking measures to contain the debt of businesses.

In the short run, with the prospect of tightened supervision, industrial capital and financing organizations will slow down their investment moves and the number of PPP projects will correspondingly decrease. But in the long run, strict supervision will help the healthy growth of the PPP market and private enterprises will play a more important role in PPP projects.

(This is an edited excerpt of an article published in  China Newsweek on January 8, 2018)