Risk Management for Build-Transfer Plus Land Usage Fee Reimbursement Delivery Method in China

Abstract

To meet the large demands for infrastructure and public facilities in the rapid urbanization process, the Chinese government has issued a series of regulations for promoting private investments and participations. Among different applications of private investment, build-transfer (BT) method was widely explored for not-for-profit infrastructure and public facilities. First, private investors finance and build infrastructure and public facilities, indirectly promoting urban area and house market development. Later, the government gets land usage fees (LUF) from real estate developers and pays the private investor back using LUF. This BT plus LUF delivery method is an innovative way to solve the dilemma between “development” and “fund shortage” in China. However, the risks such as long construction period, high investment, and obstacles in land acquisition make it difficult to implement. This paper attempts to illustrate the mechanism and risk management of this delivery method. An ecological small town located in central China was used as a case study. Based on literature review and characteristics analysis of the case, a list of initial risk factors was proposed. A questionnaire survey was then conducted, based on that, 28 risk factors were allocated between the government and the private investor, and ranked according to their significance scores. Furthermore, control measurements for the top four government-responsible risk factors were discussed. The results create a systematic risk management framework including risk identification, risk evaluation, and risk response, which can provide a reference for risk management of foreign or domestic investors in China. INTRODUCATION China is one of the largest developing countries in the world, with 1.37 billion people in 2010 and undergoing a rapid urbanization process, thus needs huge amounts of funds to improve house and infrastructure conditions. The funds are not only from tax, bonds, and other public sources, but also from private investors. It is usually called public-private-partnership (PPP) that private investors participate in public facilities development. There are two widely used PPP methods in China, namely, build-operate-transfer (BOT) and build-transfer (BT). BOT means private investors