An Analysis of Transitional Public-Private Partnerships Model in China: Contracting with Little Recourse to Contracts

Abstract

Since 2013, the Chinese government has attempted to make a transition from user-pay PPP to government-pay PPP systems with the aim of facilitating infrastructure investment and government transformation. Whilst the application of government-pay PPP systems can considerably expand the areas where PPPs are suitable, the lengthy procurement time experienced in the implementation of similar systems (e.g., Private Finance Initiative (PFI)) presents a tough challenge to Chinese procuring authorities who are under increasing pressure to get the earmarked PPP projects off the ground swiftly to stem the downward pressure in the economy. The first PFI-ish project in China, the Anqing Urban Road PPP project, has been successfully tendered in May 2015 with an impressive record on procurement time. Through the scrutiny of this project, it is found that speedy procurement is achieved by leaving some of the major risks ill-defined and vaguely allocated in the tender document. However, this apparent high risk exposure did not deter investors. This research maintains that the greater risk tolerance revealed among SOE-led investors should be attributed to the power structure embedded in China’s administrative system. Whilst leveraging this mechanism can reduce transaction costs, it could hold back the participation of private investors in future Chinese PPP projects.