PPP rules tight­ened to re­duce fis­cal risk

China Daily (USA) - - FRONT PAGE - By WANG YANFEI in Bei­jing wangyan­fei@chi­nadaily.com.cn Xin Zhim­ing con­trib­uted to this story.

China will re­in­force reg­u­la­tions on public-pri­vate part­ner­ship projects as part of its ef­forts to pre­vent il­le­gal bor­row­ing by lo­cal gov­ern­ments, ac­cord­ing to a se­nior of­fi­cial with the na­tion’s top eco­nomic reg­u­la­tor.

“Strength­ened su­per­vi­sion over lo­cal gov­ern­ments’ fi­nanc­ing for PPP projects, which be­gan ear­lier this year, marks a new start­ing point (in PPP man­age­ment),” said Han Zhifeng, deputy head of the Fixed-As­set In­vest­ment Depart­ment of the Na­tional De­vel­op­ment and Re­form Com­mis­sion.

It will be a long-term process, he told China Daily. “Lo­cal gov­ern­ments should adapt to long-term strength­en­ing of over­sight.”

Han also said con­trols will be extended to spe­cific projects. “Con­trol of risks should be im­proved at an early phase and car­ried out on a case-by-case ba­sis,” he said.

PPP is an ef­fec­tive way to en­gage pri­vate in­vest­ment in lo­cal de­vel­op­ment. But some lo­cal gov­ern­ments have used it to dis­guise too much bor­row­ing from banks, in­creas­ing the coun­try’s over­all fi­nan­cial risks.

Con­trol­ling lo­cal gov­ern­ment debt risks will be a long-term task, ac­cord­ing to a state­ment re­leased after the Na­tional Fi­nan­cial Work Con­fer­ence held in July.

In June, six top gov­ern­ment reg­u­la­tory bod­ies is­sued a guide­line on ramp­ing up ef­forts to con­trols such risks.

The state­ment spec­i­fied that lo­cal gov­ern­ments will be pro­hib­ited from pro­vid­ing guar­an­tees for se­cur­ing fixed re­turns for en­ter­prises and lenders in PPP projects.

Lo­cal gov­ern­ments are not al­lowed to shoul­der the re­spon­si­bil­ity for re­im­burse­ment for those projects or use gov­ern­ment in­come to re­pay debts, ac­cord­ing to the state­ment.

“The PPP con­tracts should clar­ify the rights and obli­ga­tions of lo­cal gov­ern­ments and pri­vate in­vestors,” said Xu Dong­sheng, a man­ager of Bei­jing En­ter­prises Wa­ter Group.

“With­out clear rules, un­cer­tain­ties that emerge dur­ing years of con­struc­tion will cause dis­putes,” he said.

Clear bound­aries will help boost pri­vate par­tic­i­pa­tion, said Wei Jian­guo, vice-pres­i­dent of the China Cen­ter for In­ter­na­tional Eco­nomic Ex­changes.

Ex­perts said the coun­try is fac­ing a chal­lenge be­cause fi­nan­cial risks can be found in ar­eas like the prop­erty mar­ket that in­clude lo­cal gov­ern­ment debts.

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