Min­istry plans rules to curb PPP mis­use

China Daily (Canada) - - VIEWS - By CHEN JIA chen­jia@chi­nadaily.com.cn

Steps to pre­vent debt risks and ex­ploita­tion of fis­cal funds by lo­cal gov­ern­ments

The Min­istry of Fi­nance is ex­pected to come out with de­tailed reg­u­la­tions for pub­lic­part­ner­ship projects to curb po­ten­tial debt risks and pre­vent the mis­use of fis­cal funds by lo­cal gov­ern­ments, of­fi­cials said on Wed­nes­day.

The new reg­u­la­tions would also lead to tighter man­age­ment of the cap­i­tal sources for PPP projects, pre­vent high­lever­aged bor­row­ing us­ing gov­ern­ment ex­pen­di­ture as col­lat­eral and ex­ces­sive com­mer­cial bank lend­ing to pri­vate par­ties, said Wang Yi, di­rec­tor of the fi­nance depart­ment at the min­istry.

The min­istry plans to close some ir­reg­u­lar projects, es­pe­cially those that “rely on gov­ern­ment ex­pen­di­ture” or do not sup­ply pub­lic goods, after a re-eval­u­a­tion process, even if they have been al­ready ap­proved, he said dur­ing a fo­rum for PPP in­vest­ment in Shang­hai.

Vice-Min­is­ter of Fi­nance Shi Yaobin said at the same fo­rum that the reg­u­la­tion should be strength­ened to clar­ify the scope of the PPP projects and to re­ject any “fake” ones that are truly com­mer­cial-ori­ented or un­qual­i­fied.

“The key is to con­trol the cor­po­rate lever­ag­ing level and closely watch the risks aris­ing from the off-bal­ance sheet busi­ness,” said Shi, who sought bet­ter co­or­di­na­tion be­tween the var­i­ous gov­ern­ment de­part­ments to pre­vent fis­cal and fi­nan­cial risks.

Ac­cord­ing to Shi, some lo­cal gov­ern­ments have used the PPP schemes as a cover to make ex­ces­sive bor­row­ings from banks. Such ac­tions will in­crease the debt of lo­cal gov­ern­ments and fuel po­ten­tial sys­tem­atic fi­nan­cial risks.

By the end of Septem­ber this year, 6,778 PPP projects have en­tered the de­vel­op­ment phase, with a to­tal in­vest­ment amount of 10.1 tril­lion yuan ($ 1.52 tril­lion), mak­ing China the world’s largest PPP mar­ket, ac­cord­ing to of­fi­cial data.

In April 2015, the min­istry in­tro­duced a guide­line say­ing that lo­cal gov­ern­ments’ in­vest­ment in PPP projects should be no more than 10 per­cent of their to­tal ex­pen­di­ture for pro­vid­ing gen­eral pub­lic ser­vices. The aim of the guide­line was to tame the in­vest­ment im­plo­sion.

“The 10 per­cent line is the bot­tom which should never be bro­ken,” Shi said.

Draft reg­u­la­tions for PPP projects in­volv­ing in­fra­struc­ture con­struc­tion and pub­lic ser­vices were pub­lished in July for pub­lic opinion. The guide­lines were drafted by the Leg­isla­tive Af­fairs Of­fice of State Coun­cil, the National De­vel­op­ment and Re­form Com­mis­sion and the Min­istry of Fi­nance.

“So far, some ba­sic is­sues are still un­der dis­cus­sion,” in­clud­ing how to iden­tify the part­ner­ship be­tween the pub­lic and pri­vate sec­tors and how var­i­ous gov­ern­ment de­part­ments can co­op­er­ate in the su­per­vi­sion work, said Zhou Jin­song, deputy head of the Treaty and Laws Depart­ment of the Min­istry of Fi­nance.

Cao Fuguo, a pro­fes­sor with the Cen­tral Univer­sity of Fi­nance and Eco­nomics, sug­gested that a mar­ket-ori­ented mech­a­nism was nec­es­sary to eval­u­ate the risks and re­turns of the projects, in­clud­ing en­cour­ag­ing par­tic­i­pa­tion of third-party fi­nan­cial ser­vice in­sti­tu­tions and credit rat­ings agen­cies.

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