China says construction of PPP projects has entered ‘fast lane’

Resolving local debt risks important for fiscal sustainability

BEIJING, July 30, (RTRS): China’s public-private partnership (PPP) project construction has entered the “fast lane” and will become a unified, standardised, transparent market, a government research office said.

As of the end of June, there were 13,554 projects nationwide with investment of 16.3 trillion yuan ($2.4 trillion), according to data from the China Public Private Partnerships Center, the official Xinhua news agency said on Sunday.

More than 34 percent of projects had reached the implementation phase, it said.

“Our country’s public-private partnership project construction has enter the fast lane, an active period,” Xinhua cited Wang Yiming, deputy director of the State Council Development Research Center, as saying.

But Wang warned that as more projects moved from construction to operations, more risks were exposed, such as excessive financing that has led to high financial leverage and debt-to-capital ratios, and impractical projects in rural areas.

Controls

In recent years, the government has tightened controls on new local government debt to help ward off risks following a borrowing binge since the global financial crisis.

Authorities have also vowed to prevent local governments from using public-private partnerships, government investment funds and government procurement services as “disguised channels” for raising debt.

The State Council, China’s cabinet, has said resolving local debt risks was important to ensure the country’s economic and fiscal sustainability and financial safety.

China’s total private and public debt has exceeded 250 percent of gross domestic product, up from 150 percent before the global financial crisis, according to the Organisation for Economic Cooperation and Development.

Last week, a senior Chinese economic official indicated that policymakers would be willing to sacrifice some short-term economic growth in order to deal with systemic risks.

Beijing is trying to contain rising debt and defuse property bubbles amid fears such risks could derail the world’s second-largest economy if not handled well, but policymakers will be treading warily ahead of a key party meeting later this year.

“(China can’t let smaller risks) eventually lead to large systemic risks that would cause serious harm to China’s economy,” Yang Weimin, vice minister of Office of the Central Leading Group on Financial and Economic Affairs, told reporters.

“We would rather sacrifice in some other areas, but also deal with the relationship between stable growth and risk prevention”, Yang said.

But Yang also said China could achieve both goals of maintaining steady growth while containing debt levels.