Experts: PPP should focus on quality, risk avoidance

The public-private partnerships that China is now promoting should not be seen or used as a new channel of financing for the government, and preventing financial risk as well as economic upgrading shall always be seen as top priorities, a government official said.

Shi Yaobin, vice-minister of finance, made the remarks when addressing a recent forum on China’s PPP development at Peking University. The forum also announced the establishment of the PPP Research Center at Peking University.

Shi said that while the PPP mode is growing along with a rapidly developing market, some issues exist amid the growth of the sector, such as paying too much attention to expanding the number of PPP projects instead of focusing on the quality of existing projects, as well as lack of attention in preventing financial risks.

For example, in order to absorb more private investment, some local governments as well as financial institutions did not exert strict enough supervision on fiscal expenditure, while some local governments also changed some purely private investment projects into PPP, Shi pointed out.

“These malpractices have not only disrupted market order, but also aroused new financial risks, which must call for our attention,” Shi said. “Preventing risks and (realizing) a well-regulated, sustainable development is the key task for developing PPP projects in China at the moment.”

Li Yang, a researcher with the national financial and development research lab at the Chinese Academy of Social Sciences, pointed out that one potential problem for China developing PPP projects is that it may add local government debt.

“One important phenomenon that requires our attention, especially after 2015 in developing PPP, is that some local governments are actually getting more debts under the name of practicing PPP,” Li said.

Li Yining, a leading economist, also spoke at the forum, saying he believes there is great potential in China’s PPP development, which will play an important role in China’s reform in general, but that it is important to set up a stable and comprehensive set of regulation and legislation regarding these projects.

He pointed out that the private sector is still not vigorously participating in PPP projects, and a major reason for that is that private investors are concerned that policies may change when personnel changes take place among local government officials, leading to losses in certain PPP projects and their investments.

Prevent- ing risks and (realizing) a well-regulated, sustainable development is the key task for developing PPP projects in China at the moment.” Shi Yaobin, vice-minister of finance