Conflicts between PPPs and the existing legal system

Although the Ministry of Finance, the National Development and Reform Commission (NDRC) and other departments have been issuing new policies on public-private partnerships (PPPs), our past experiences tell us that several existing conflicts between the PPP and the current Chinese legal system have not yet been effectively addressed, and investors may find themselves in an awkward predicament during their operation.

Conflicts with land system

Under current land policies, land use rights can be acquired by free allocation or compensatory granting, among other methods. Specifically, the methods of compensatory granting include invitation of bids, auction, listing and agreement. The law stipulates that land of a business nature – such as for industry, commerce, tourism, amusement and commercially developed residential premises – shall be granted by invitation of bid, auction and listing.

For commercial PPP projects, under the existing land system it’s highly likely that on one hand the government would choose the investors of PPP projects by invitation to bid, competitive negotiations, granting and other ways, while on the other hand, it has to grant the commercial land of PPP projects through public methods of invitation of bid, auction and listing, which may result in the failure of the investors to acquire the land use rights, although they have won the bid for PPP projects. This conflict is particularly sharp in PPP projects involving the integrated development of rail transportation with the land alongside.