China Wants Private Cash for Public Projects in New Stimulus BidBloomberg News
As China’s leaders grapple with a debt hangover from their 4 trillion yuan ($645 billion) stimulus spree kicked off in 2008, they’re turning to private-public partnerships this time around. The roads, railway and other projects have a combined price tag of nearly 2 trillion yuan, according to a list published on a government website last week.
The PPP promotion is part of Premier Li Keqiang’s bid to arrest an economic slowdown without adding fiscal risks. He has also relaxed curbs on local government borrowing to keep infrastructure projects ticking, while the central bank has eased policy to cut funding costs. Success of the PPP push will hinge on the willingness of investors to overcome past pain and renew trust with the government as a project partner.
“Private investors have raw memories of being bullied by state or governmental partners and they have to be cautious,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. “If you look at the projects, most of them are long-term infrastructure or utilities with poor profitability prospects -- the bones not the flesh.”
This isn’t China’s first PPP plan. Local governments tried to lure private money for much-needed developments in the 1990s. Newspapers are littered with reports detailing past failures.
Chen Qingyuan, a private investor, agreed with the Quanzhou government in southeast Fujian province to develop a 1,530-meter (5,020 foot) toll bridge with a total investment of 250 million yuan in 1994, according to a National Business Daily report. The local government subsequently built another seven bridges in the city -- without tolls -- resulting in a plunge in revenues for Chen, according to the Shanghai-based newspaper.
A 251-kilometer (156 mile) railway linking Jinhua and Wenzhou in eastern Zhejiang province was jointly funded by private investors and the former Ministry of Railways. The railway, which started construction in 1992 with total investment of 1 billion yuan, wasn’t able to receive enough cargo and passengers as the rights to manage the network remained tightly controlled by the government. The line was taken over by the state in 1998, according to China Industry News.
This time around, some private investors have already started to gain. Beijing Water Business Doctor Co. has inked two PPP deals in 2015 -- to build a water treatment plant in Inner Mongolia and another in Anhui province. Combined, the investments are worth almost eight times the company’s 2014 revenue. Its share price has nearly tripled on the Shenzhen stock exchange in 2015.
PPPs have had mixed success elsewhere in the region.
Indonesia’s PPP program faces challenges including overlapping leadership roles and unclear bidding and evaluation rules, the Economist Intelligence Unit said in its 2014 Infrascope report. The Philippines recorded the most-improved PPP framework, according to the EIU.
In Australia, there were a series of PPP toll road failures, including a tunnel linking Brisbane to its airport and Sydney’s Lane Cove and Cross City tunnels. Japan is putting infrastructure operating rights worth 3 trillion yen ($24.2 billion) on the auction block as Prime Minister Shinzo Abe seeks to spur growth and curb the world’s biggest debt burden.
While history and regional hurdles suggests investors in China’s PPP proposals will be in for a bumpy ride, one gainer stands to be the economy, which needs a shot in the arm.
“The PPP project list showed that the Chinese government is trying to do something to help growth, and there will be positive effects,” said Li Wei, China economist for Commonwealth Bank of Australia in Sydney. “But it takes time.”
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