Review and outlook of the Chinese market in the later PPP period

For investors, looking back at the public-private partnership (PPP) enterprise in 2018, at the turn of the year, leaves them with little comfort. In this year, following four years of unrestrained growth, and together with the closely spaced issuance of a series of regulatory documents and the rectification of numerous PPP projects, and their removal from the PPP database nationwide, PPP projects have gradually moved into a cooler and more rational, regulated growth period.

Objectively speaking, the above-mentioned measures have genuinely resolved such non-compliance issues as the failure to complete, for certain PPP projects, the “two assessments and one plan” (fiscal capacity assessment, value for money assessment, and preliminary implementing plan) concerning whether procurement exceeds the red line of the government’s fiscal capacity for expenditures of 10%, the illegal raising of debt and provision of security, etc., and their effect on the phenomenon of overuse and misuse of PPPs, and on the prevention and mitigation of government debt risks, have been notable and positive, and will be conducive to realising the steady and long-term development of PPPs.

However, in practice, due to a deviation in the understanding of policies and regulations by certain local governments and authorities, and a crude and simplistic “one size fits all” approach, implementation of PPP policies has become exceedingly unbalanced, and rectification of PPPs has gone overboard, giving rise to a string of legal issues.

Wang Jihong is a partner and Han Jiangyu is an associate at Zhong Lun Law Firm