Impact of Commercial Bank Law’s article 43 on PPP projects

With the widespread use of the public-private partnership (PPP) model in China, financing channels for projects have increasingly diversified. Bank, trust, fund and insurance channels of capital have all rushed onto the stage of project financing. Subject to article 43 of the Commercial Bank Law, banks, as the traditional big brother of financing, have always played the role of lender. In practice, the opinions as to whether they can participate in the bidding on, and contribution of capital to, PPP projects as private investors have been mixed.

A PPP project the authors recently advised on was called into question on a number of occasions because a commercial bank participated in the bidding as an investor, and due to a difference of opinion among the parties on the understanding of article 43 of the Commercial Bank Law. With respect to the project, the public party expressly stated in the bid invitation documents that “a bidder may be a consortium. One of the other members of the consortium may be a financial institution”.

However, when a consortium composed of an investor and a certain commercial bank participated in the bid for the project and was awarded the contract, one entity raised questions with the public party, arguing that the participation by a commercial bank in the invitation of bids for a PPP project and the making of a capital contribution by it to the project company violates article 43, and should therefore be deemed invalid.