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More Reforms Needed to Advance PPP
Problems have cropped up as PPP projects move forward
By Sun Shaohua | NO. 10 MARCH 9, 2017

The construction site of an underground pipe PPP project in Gongzhuling, Jilin Province, on June 16, 2016 (XINHUA)

News of public-private partnership (PPP) projects has kept pouring in since the start of the year. More and more local governments are regarding PPP as a major means of attracting investment as they deal with tighter budgets, stricter debt oversight, and slowing economic growth. However, problems have also cropped up as PPP projects move forward, and participants shake off the investment fever.

As an innovative investment and financing tool as well as a source of government expenditure, PPP is expected to play an important role in ensuring stable growth. It is also designed to help bolster reforms, optimize the economic structure, improve people's lives and forestall financial risks. Since 2013, the number of PPP projects has increased rapidly, spreading throughout the country.

PPP ventures have kept doubling in number each year for the past three years. Particularly in 2016, the number and investment volume of PPP projects hit record highs as local governments became more enthusiastic about adopting the system. According to figures from the Ministry of Finance (MOF), by the end of October 2016, the number of PPP projects had exceeded 10,000, with a total investment volume of more than 12.7 trillion yuan ($1.85 trillion).

As projects initiated by the National Development and Reform Commission and the MOF commence operation, industrial insiders estimate that the investment volume of new PPP projects implemented this year will reach 2 trillion yuan ($291.12 billion).

However, there are also many obstacles to carrying out such undertakings, and we should stay alert to problems related to this system.

First of all, the PPP scheme can be misunderstood or abused. Some local governments regard it as a panacea and rush to implement it without taking local situations into consideration. Some county or municipal governments use PPP projects as a tool to get more financing in various disguised forms, further raising local government debt and making the oversight of such debt more difficult. Besides, some private investors that intend to take part in PPP projects want to recover their investments within a short time, but have no plans or input in those projects' long-term operations and maintenance.

Second, many PPP projects are still at an initial stage, and problems which may occur later through financing, formulation of supporting policies and the application of laws have not yet emerged. More problems are likely to emerge as such ventures proceed.

Efforts to promote PPP activity require both sound policies and supporting reforms. For instance, in some underdeveloped regions, government budgets are not sufficient enough to bolster weak spots in infrastructure and public services. Due to a MOF regulation stating that PPP should not exceed 10 percent of a local government's annual budget expenditure, some projects may not be approved. To solve this problem, related fiscal and tax reforms are necessary to balance local governments' resources and responsibilities.

Take reforms of financial institutions as another example—they often lag behind current developments, meaning that those organizations are unable to make proper assessments on the benefits and risks of PPP projects. As a result, private enterprises interested in such deals face difficulties when looking for financing.

This year, PPP projects, whose cumulative investment volume has exceeded 10 trillion yuan ($1.46 trillion), will be under stricter scrutiny as participants become more moderate toward such undertakings, making it more urgent for the government to provide better supporting policies and to formulate relevant laws and regulations.

The author is a financial reporter and this article is published in Economic Information Daily

Copyedited by Bryan Michael Galvan

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