Retro or Renewal: An Assessment of PPP Management and Policy in China Since 2014

Abstract

Since 2014, public–private partnerships (PPPs) in China have experienced an impulsive new boom with a new PPP policy that has drawn wide attention domestically and internationally. In particular, development characteristics and performance assessments of projects in the new PPP boom are a hot topic. By comparing China’s PPP development in the last several years with that in the past thirty years, we explore its rationale and performance through a critical review using the following approach: first, we identify and analyze its seven new characteristics of investment scale, spatial distribution, investment sectors, operational model, concession period, payment mechanism, and tendering period; second, we diagnose the nature and performance of the new PPP boom; third, we systematically scrutinize the rationale behind the characteristics and the possible mechanism; and last, we conclude with the argument that the new PPP boom could be well managed by the Chinese government if some prerequisites are met. We also raise some key issues inviting more comprehensive comparative studies. This study contributes to the existing literature by providing a project-data-analysis lens to better understand PPP development in China and worldwide. The implementation of this study will not only enrich global PPP knowledge, but will also be a good reference for PPP practice and trends in China and other developing countries.

Keywords

public private partnership comparative review urban infrastructure policy evaluation China

Introduction

Public–private partnerships (PPPs) are becoming one of the most widely recognized effective financing vehicles around the world due to their fairness and efficiency (Song et al., 2016; World Bank, 2016). PPPs boast advantages including cost reduction (Domberger & Jensen, 1997), access to private resources (Reeves, 2003), risk sharing (Liu et al., 2010), and quality improvement (Sullivan & Skelcher, 2002). Therefore, PPPs are increasingly gaining greater popularity as a governing model for the delivery of public goods and services in China (Wang et al., 2017; Xiong et al., 2018). In fact, China started to explore and introduce PPPs in 1984 when the first PPP project, Shenzhen Shajiao B power plant, was built through the build–operate–transfer (BOT) format (Chang & Chen, 2016). Since then, China witnessed a stable expansion and fluctuations in PPP practice until 2013 (Cheng et al., 2016).

Driven by a large demand for rapid urbanization and a series of supportive and incentive policies from the new central government since 2013, PPP practice has experienced unprecedented growth with a huge increase in project number, investment scale, and regional distribution (Ke et al., 2014). As a result, 2014 can be regarded as a watershed and landmark year for China’s PPP development. China has stepped into the phase of a new boom in PPP development (Cheng et al., 2016). The momentum is so striking that a few scholars began to describe it as overheating or feverish (Ke et al., 2016).

This boom invokes a series of research curiosities or key questions such as what new characteristics does the new boom have compared with previous PPP developments? Is the current PPP a fad or an innovation? What is the rationale behind the boom and its possible mechanism? Can the new PPP boom be well managed by the Chinese central government and local governments? What are the prerequisites if it could be managed?

Answering the above questions will help the international community better understand PPP applications and trends in China. Moreover, answers will help multinational enterprises effectively participate in China’s PPP market. Given that China plays a leading role in developing countries and serves as an engine of the global economy, China’s PPP also has important reference value for global PPP development and knowledge. Thus, this article systematically analyzes China’s current PPP situation and answers the questions raised above through a critical comparative review of China’s PPP practice in two different periods, as well as comparing the projects implemented in the last several years with those in the pipeline during the same period.

The article is organized as follows: first, we identify characteristics based on quantitative manipulation; second, we diagnose the momentum of the PPP boom in the last three years based on the data analysis; third, we further explore the rationale behind and the possible mechanism of the characteristics; fourth, we assess government management capabilities in the current PPP boom; and last, we conclude the debate and discuss the implications for future research.

Theoretical Background of PPP Development

PPPs are becoming increasingly popular around the world, despite lacking a global universally accepted definition (Brogaard & Petersen, 2018; Hayllar & Wettenhall, 2010). Countries and international organizations have different definitions of PPP. The World Bank (2017) defined PPP as “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility and remuneration is linked to performance” (World Bank, 2017). In Australia, PPP is defined as “a long-term contract between the public and private sectors where government pays the private sector to deliver infrastructure and related services on behalf, or in support, of government’s broader service responsibilities” (Infrastructure Australia, 2008). The United Kingdom (UK) classified PPPs into three categories: the introduction of private-sector ownership in state-owned businesses, the private-finance initiative (PFI) including other arrangements, and selling government services to wider markets and other partnership arrangements (HM Treasury, 2000). In China, the Ministry of Finance (MoF, 2015) defined the PPP model as

a long-term cooperation relation established in infrastructure and public service sectors between the government and private capital investors. Generally, corporate partners undertake the most part of the design, construction, operation and maintenance of infrastructure, and obtain reasonable investment returns through ‘payment by users’ and necessary ‘payment by the government’; and governmental departments are responsible for the supervision over the prices and quality of infrastructure and public services to ensure the maximization of the public interest.

In PPP applications, countries differ in forms of PPPs due to various factors. The PPP form used most frequently in the UK is PFI, but in other countries, such as France, BOT (build–own–operate–transfer) is more popular. The ambiguity of the concept and variety of PPP forms have brought much confusion to academics and practitioners (Curtain, 2017). Even PPP professionals from different backgrounds have communication difficulties so that some scholars regard PPPs as a language game (Hodge & Greve, 2010). From a global perspective and experience, it is reasonable to assess PPP as a family of concepts. PPPs include five levels of meaning: project, delivery method, policy, governance tool, and cultural context (Hodge & Greve, 2016). This study regards PPP as a long-term cooperation based on a contract between members of the public and private sectors on infrastructure delivery, including a wide range of forms such as BOT, PFI, transfer–operate–transfer, rehabilitate–operate–transfer, and design–build–finance–operate.

Many factors influence policy such as economic, fiscal, political regime, and international events and organizations (Duckett, 2019; Giulio & Vecchi, 2019; Husain, 2017), and PPP policy is no exception. However, in different countries, especially developed and emerging markets, influencing factors, processes, and effects of policy are distinct (Zhu & Zhang, 2016). Extant studies on definition, transaction structure, and implementation guidelines of PPPs mainly focus on the institutional environment and practical experience of Western countries (Wang et al., 2017). Studies have shown that learning from and imitating Western policy experiences does not clearly guarantee the same outcome and performance (Geyer & Wang, 2019; Turcotte-Tremblay & Spagnolo, 2016; Yuan & Wang, 2012). In other words, the localization of PPPs in developing countries is an important factor in ensuring PPP performance. For example, China’s PPP policy process is deeply embedded in the context of decentralization reform, local-government debt, new urbanization, and democratization. In contrast, as a country with a government-led socialist tradition, China’s government actively promotes economic marketization and political decentralization during the transition to a market economy; the role and effect of policy intervention in this context is also different from that in the developed market (Duckett, 2019; Heilmann, 2008; Husain, 2017). Therefore, through the theoretical lens of the country-specific characteristics of a transitioning country, this study takes China as a typical case to analyze the performance of PPP management and policy.

Method and Data

Research Design

We applied a policy-impact assessment to evaluate the implementation effect and management of China’s PPP policy since 2014 (Ramírez, 2009). We specifically used an integrated method of historical, comparative, and data analysis to conduct a comparative evaluation of policy effects before and after the 2014 new PPP policy in China (Balleisen & Brake, 2014; Mack & Kohler, 2019). This study references the idea behind the popular regression-discontinuity-design method (Imbens & Lemieux, 2008; Lee & Lemieux, 2010). Using this methodology, we take China’s new 2014 PPP policy as a significant event shock, selecting a number of PPP projects, amounts of investment, sectors, contract types, concession periods, and payment mechanisms as variables to assess the new PPP boom by comparing ex-ante and ex-post policy. We sought to discern if the new PPP policy is markedly different from the previous development of PPPs to understand the performance of the new PPP policy to determine if China’s current PPP boom can be well managed.

We conducted the research in the following ways: first, we systematically reviewed existing PPP databases; then, we selected three databases for further in-depth analysis; third, we compared and analyzed the characteristics of PPP projects; and finally, we conducted an in-depth discussion and assessment of the new PPP boom’s sustainability.

Data Collection

Since 1984, China has maintained virtually no official PPP project database. The first PPP project of a power plant was implemented in Shenzhen, which is one of the four Special Economic Zones and the first pioneer of opening-up in China. Our research team then collected data for the years 1984 to 2013 through an open search, mainly using Google and Baidu searching engines to fill the gap. Figure 1 shows the PPP database’s detailed design approach. We named this self-archived database “CN PPP Database 1984–2013” (hereafter abbreviated as D1) with 1,221 PPP projects prior to 2014. We established D1 to serve as the benchmark when comparing PPP projects after 2014.

Figure 1.

Data-collection design.

The National Development and Reform Commission (NDRC) and the MoF established two official PPP project databases since 2014. The NDRC database opened to the public in 2015 whereas the MoF database opened in 2016. The two databases share a great deal of overlap in project attributes, yet the NDRC focuses more on registration and approval and the MoF emphasizes the whole operational process. Moreover, the MoF database updates data more frequently and more transparently in accessing wide-scope data with richer content. More importantly, the MoF documents and monitors project-implementation status and ongoing operational processes in a timely way, which is not true of the NDRC database.

According to the MoF,¹ the typical PPP project life cycle in China generally comprises the five stages as shown in Figure 2. The identification stage is mainly to assess the value for money and financial affordability to estimate project suitability for the PPP model; the preparation stage aims to draft implementation plans and the PPP module design; the procurement stage refers to the selection of private stakeholders to be involved through legal procedures and the bidding process; the implementation stage focuses on the establishment of a special-purpose vehicle and its financing, operation, and management; and the transfer stage literally hands over the project to the government.

Figure 2.

Five stages of PPP project life cycle in China.

Therefore, we adopted the MoF database and divided it into two separate subsets: PPP projects being implemented (MoF PPP Database A, hereafter D2a) and those in the pipeline or awaiting implementation (MoF PPP Database B, hereafter D2b). Projects awaiting implementation are those in stages of implementation or transfer whereas those in the pipeline are in stages of identification, preparation, or procurement. By comparing D1 with D2a and D2b, we can quantitatively diagnose China’s new PPP boom to analyze current and new characteristics and governance.

Result: Characteristics of the New PPP Boom

Some new characteristics about the new PPP boom can be described as follows:

Huge Investment Scale

In addition to the large number of PPP projects, total investments were huge in the last 3 years for single projects and on average. As shown in Figure 3, based on D1, D2a, and D2b, the total investment scale of PPP projects with 1,221 implementations in the past three decades was a little over 1 trillion RMB (151 billion USD²), with 820 million RMB (124 million USD) on average, whereas the corresponding scale for 1,362 projects being implemented in the last 3 years was about 2.3 trillion RMB (348 billion USD), with 1.7 billion RMB (258 million USD) on average. The accumulated investment scale of 9,820 PPP projects in the pipeline even reached 11.2 trillion RMB (1.7 trillion USD), with 1.1 billion RMB (167 million USD) on average, a little less than that of projects implemented but with more diversified investment sectors. Clearly, the total and average investment scales of projects being implemented in the last 3 years were roughly two times those in the past thirty years (adjusted for inflation).

Figure 3.

Comparison of PPP projects by number and investment scale.

Several huge investments and large-scale projects emerged in the last 3 years. According to D1, 18 projects attracted over 10 billion RMB (1.5 billion USD) with the largest project costing 54.3 billion RMB (8.2 billion USD). Based on D2a, projects implemented with investments over 10 billion RMB (1.5 billion USD) climbed to 36, with the largest one at 89.8 billion RMB (13.6 billion USD). According to D2b, the corresponding large-scale projects in the pipeline rose to 194, with the largest one at 72.2 billion RMB (10.9 billion USD). In terms of the investment sector, a strong tendency emerged in both periods for the greatest investment in huge projects in transportation, particularly in highways or expressways.

More Projects Emerged in Central and Western China

As shown in Figure 4, PPP projects developed before 2014 were highly concentrated in the more economically developed coastal area. Provinces including Fujian (122 projects), Guangdong (116), Jiangsu (95), Zhejiang (79), and Shandong (75) were the most active players in PPP implementation. In contrast, PPP projects emerged in the central and western regions after 2014, with a higher number of projects than those in the eastern region in implementation and in the pipeline.

Figure 4.

Comparison of implemented PPP projects before and after 2014 by region.

The top five provinces with a higher number of PPP projects on implementation were Shandong (258), Xinjiang (155), Zhejiang (90), Sichuan (88), and Henan (86); three of them are located in the central and western regions. In contrast, among the top five provinces with the largest number of PPP projects in the pipeline were Guizhou (1724), Shandong (829), Inner Mongolia (770), Sichuan (760), and Henan (709); four of them are located in the central and western regions.

Trends to Become more Diversified by Sector

MoF has classified PPP project sectors into 19 categories in its official database (D2a and D2b). Based on this classification, PPP projects became increasingly diversified by the investment sector after 2014, shown in Figure 5. Nearly all projects prior to 2014 were concentrated in municipal facilities and transportation, with over 83% and less than 17%, respectively. After 2014, however, a diversification trend in PPP investment took place by sector. For projects on implementation, investment is still highly concentrated in municipal facilities and transportation with a bit more diversification in other categories. Of 1,362 projects in total, 628 projects are in municipal facilities and 199 in transportation, accounting for 46.1% and 14.6%, respectively.

Figure 5.

Distribution of PPP projects by sector.

Stronger diversification emerged in investments for projects in the pipeline, although categories of municipal facilities and transportation still held the highest proportion, with 3,379 and 1,175 projects, respectively, of 9,820 in total, accounting for 34.4% and 12.0%, respectively. The remaining sectors rank from high to low by proportion and are listed as follows: healthcare (705, 7.2%); tourism (625, 6.4%); area development (603, 6.1%); agriculture, forestry, and water resources (579, 5.9%); environment (536, 5.5%); culture and sports (488, 5.0%); education (482, 4.9%); and affordable housing (470, 4.8%).

It is understandable that projects in municipal facilities share the highest proportion, as they cover a wide area encompassing water supply and treatment, waste treatment, heating systems, urban road networks, and landscape building. Municipal facilities are also the category in which adopting the PPP model is most appropriate, thanks to the stable profit generated by urban infrastructure and utilities.

BOT Remains as the Dominant Contract Type

BOT remained the dominant contract type for all projects across the two periods, as shown in Figure 6. As for projects being implemented, the second most important type for the two periods were transfer–operate–transfer, whereas the corresponding type for those in pipeline was build–own–operate. This ranking may imply that build–own–operate is still difficult to adopt in China, given its deeper involvement in complex ownership and privatization.

Figure 6.

Distribution of PPP projects by contract type.

Projects with Longer Concession Periods are More Desired

PPP concession periods are clearly regulated in China to be 10 to 30 years. Figure 7 shows that after 2014, 42.3% of implemented projects fell into the concession period of 20 to 30 years, whereas the most desired concession period for projects in the pipeline is 10 to 20 years, accounting for 41% of projects. The rationale behind this phenomenon must be analyzed in depth, as explored in the discussion section.

Figure 7.

Distribution of PPP projects by concession period.

The Payment Mechanism is Shifting to the User-Charge Model

Of the three main payment mechanisms for PPP projects—user charge, government payment, and government viability gap—nearly all implemented PPP projects adopted the user-charge model before 2014, whereas the other two mechanisms started to be introduced and promoted after 2014. As shown in Figure 8, most implemented projects used the government-payment mechanism, amounting to 39.6% of the total. In contrast, for those projects in the pipeline, the user-charge model has become the most popular, comprising 43.4% of the total.

Figure 8.

Distribution of PPP projects by payment mechanism.

The Short Tendering Period must be Alerted

Based on the review of 53 pilot PPP projects, the tendering period in China after 2014 was about 13.5 months, on average, with variations from 6 to 43 months. In contrast, the corresponding situation in Ireland ranged from 22 to 58 months (Reeves, 2015), with 34 months on average; and the UK and Canada between 35 and 19 months on average (HM Treasury, 2013). Surely China will have high efficiency in PPP-project implementation; yet, it might give rise to big risks from quick but less prudent decisions.

Discussion

Some embedded rationales may be unearthed if the new characteristics reflect China’s new PPP boom, and measures should be taken to address or regulate the phenomenon. This study adopts an analysis framework of the “3Rs” of recognition, rationale, and response to conduct an in-depth exploration of the new PPP boom in China.

Recognition: How to Understand China’s New PPP Boom

How to understand, recognize, and evaluate the new PPP boom in China is a key issue for researchers and practitioners in China and globally. Specifically, is the current PPP policy, model, and application—compared to PPP development over the last 30 years in China—a retrofit or a renewal? Is the new PPP boom normal?

Clearly, the aggregated number of PPP projects in the last several years is already higher than that of the past thirty years. If the projects in the pipeline are included, the total number will rise dramatically, reverberating throughout the country, with more than nine times the total number of projects implemented in the past thirty years. In this sense, PPP practice in China since 2014 might be regarded as overheated.

A simple international comparison also signals a similar conclusion. The UK, where PPP was originally developed, started its first PPP project³ in 1972, with the accumulated number now only over 900. Canada follows roughly the same pace and momentum, with the total number of PPP projects reaching about 240 to date. Likewise, the total number of implemented PPP projects in Australia⁴ and Ireland⁵ were respectively just over 130 and 27, respectively, until 2016. Compared with those preeminent countries with PPP practice, China seems to be catching PPP fever. However, the situation in developing countries, particularly those developing large numbers of PPP projects, could be quite different. For example, the total number of PPP projects in India⁶ was also high, up to 1,582 in the last ten years.

Hence, a more careful examination must be conducted to diagnose the new PPP boom. It might be too simple to conclude that China has developed a fever since 2014 by using the accumulative data of the two time periods, with international cases for comparison. Based on the perspective of a yearly distribution, the number of PPP projects fluctuated, as shown in Figure 9, with the fluctuation during 2014 to 2016 enormously high. However, following 2016, China saw a large drop in the number of PPP projects. In particular, the MoF strengthened regulation of PPP projects with a series of measures including the elimination of unqualified projects, and strict entry criteria for new projects. The number of PPP projects began to decline significantly after those policies were in place. Thus, the explosive momentum of PPP projects being implemented since 2014 is not a prevailing trend; rather, it was a short-lived boom.

Figure 9.

Number of PPP projects implemented by year (1984–2016).

Therefore, identifying the corresponding new characteristics of PPP practice in the last several years has become urgent, and further exploration of the rationale for the possible mechanism of the boom is crucial.

Rationale: Factors Behind the New PPP Boom

Possible reasons for the boom could be elaborated in the following ways:

Strong promotion of governments

Aligned with economic transitions and restructuring, the Chinese central government recognized the importance of PPP as a powerful tool for investing and financing in new urbanization. Approved by the State Council, some organizations particular to PPP promotion and management were set up in sequence; notably, the China Public Private Partnerships Center under the MoF and the PPP Projects Promotion Office under the NDRC, all aiming to accelerate the approval and implementation process of PPP projects. Echoing this initiative, many local governments correspondingly established PPP offices, departments, or platforms. As a consequence, a series of policies were issued and more than 100 official documents were released to encourage PPP practice in various ways. For example, the MoF issued the Operational Guidelines for Public-Private Partnership Model in 2014 to regulate and standardize the PPP process. The government also understood many incentive measures to encourage high performance in PPP implementation. Some provinces or municipalities even took high performance as a criterion for government officials’ promotion.

Driven by the new urbanization campaign

The new urbanization campaign, officially initiated in 2013 when the NDRC issued the National New Urbanization Plan, further stimulated China’s PPP boom. This program focused on overall improved quality and comprehensive development, with high emphasis for the first time on the various areas of social security, cultural amenities, environmental protection, health, and education. This plan directly led to diversified PPP projects by individual sector. Also, the citizenship of 200 million permanent migrants (those who lack “hukou” status) in China requires urban facilities to be upgraded to meet the new additional consumption. PPP therefore becomes an effective option for investment financing. This demand is particularly urgent in central and western China due to less sophistication and sufficiency in infrastructure facilities and services.

Quality urban infrastructure suitable for PPP

The slowdown of the manufacturing-based economy and more restrictive policies in preventing a housing bubble, as well as the higher threshold for entering the financial and large-scale Internet economy sectors, made private investment more vulnerable in finding new areas of growth. The large volume of private capital then had to be shifted into urban and regional infrastructure, areas that usually consume high investment over time, rendering them more suitable for PPPs with a stable, less risky return. This list of rationales partly explains why the proportion of PPP projects in municipal facilities and transportation was much higher after 2014.

Way to avoid local debt

Diminishing land sales as an off-budget practice and the huge amount of local debt accumulated from urban expansion in the past decade was another essential factor further stimulating the requirement and implementation of PPP practice. According to the official estimation from the MoF, local debt reached 16 trillion RMB (2.4 trillion USD, possibly underestimated) by the end of 2015.⁷ The fiscal stimulation program, initiated by China’s central government, amounted to 4 trillion RMB (600 billion USD) during the financial crisis of 2008, which played a catalytic role for local governments to more easily mobilize investment in urban construction, but also generated heavy cumulative debt. To avoid possible bankruptcy from those debts while continuing to improve the quality of urban construction called for by new urbanization, local governments enthusiastically took PPP as an alternative hope to neutralize the dilemma.

An acceleration of public awareness and capacity building

Raising public awareness could help local governments implement PPP projects more smoothly, as recognition of the importance of PPP by the people enables local governments to speed the pace of relocation in some projects, if needed. Various public media—TV, radio, newspapers, journals, portal websites, and the Wechat Public Platform—enhanced public awareness in response to government advocacy. As a concerted action, a series of PPP training programs and activities sparked all over China, and many professional groups, companies, and experts on PPP practice emerged after 2013. As a result, PPP proposals submitted to higher authorities for approval experienced proliferation in numbers and investment scale. At the same time, the tendering period was shortened.

Active participation of state-owned enterprises as a private sector

After more than 30 years of development, China’s PPP has undergone a process of transplanting, learning, and localizing, learned from the Western countries, and forming some Chinese characteristics (Cheng et al., 2016). For example, state-owned enterprise (SOEs)serving as “private capital” in PPPs, was not accepted in the traditional PPP knowledge body and is the most controversial topic of China’s PPPs in the international PPP community. SOEs play a leading role in China’s economic system, owing to their technology, funding, management, and risk-resistance capacities with which private enterprises could not compete. Compared with multinational companies, SOEs have the advantages of lower cost and higher degrees of localization. As a result, SOEs have currently become important actors in China’s PPPs. Of course, this is only a temporary expediency measure. Over time, PPPs must compromise between long-term goals and short-term performance. The current approach may not be consistent with PPP theory and the original inauguration in Western countries, but it fits the current Chinese reality and meets the current Chinese demand through the lens of pragmatism, enabling a timely and adequately provision of China’s infrastructure, urbanization, and economic growth, and reflects the efficiency and outcome-oriented values of PPP policy and management in China. Therefore, a question and concern emerge for other developing countries in adopting and implementing PPP practice.

In sum, a possible mechanism systematically connects all these factors for the new PPP boom. The central government heralded the PPP campaign through a top-down process by leveraging tools of preferential policies and incentives. On one hand, local governments served as the real players to dilute debt, and promote economic growth on the other. By cooperating with local governments, private sectors were also passionate in developing PPP projects through a bottom-up process to avoid possible risks from investing in other sluggish industries like manufacturing. Media enhanced public enthusiasm, popularizing PPP knowledge to buoy public recognition, while the capacity-building of professional trainings and programs nurtured a large group of practitioners and experts. In turn, together with huge market demand driven by new urbanization initiatives and high-quality urban infrastructure construction, stakeholders jointly accelerated PPP project application and implementation. An impulsive PPP boom was then born.

Response: Can the Current Boom be Well Managed?

It is still hard to judge, based on the above analysis, if China is experiencing real PPP fever rather than a fever-like impulsive boom with fluctuations in the last several years. The question is whether the Chinese government can manage the current impulsive boom well, and to what extent, in which situation, and with what prerequisites.

In an administration-led state, the Chinese government continues to play a decisive role in PPP development. The government urgently requires an effective approach to manage the current boom through regulations, policies, and implementation. The Chinese central government seems to have realized the challenges induced by this impulsive boom and has begun to explore new approaches to rein in the derailed PPP cart and achieve a quality-oriented development model. The State Council is redrafting a legal act on PPPs in infrastructure investment and public service⁸ that will require a higher entry threshold in investment scale and more careful selection of projects with better-qualified private partners through a transparent bidding process. The MoF issued the implementation opinions on promoting the standardized development of PPP in March 2019, which further standardized the development of PPPs through information disclosure, strengthening supervision, and institutional improvement. But like the previous series of PPP policies, the implementation effect of this policy must still be further observed. The impact of this policy on PPP is quite significant, as private capital and banks have become much more cautious.

On one hand, the central government is dedicated to promoting PPP development by allowing more private-sector actors to become involved in urban-infrastructure construction and operation by concession; on the other hand, the central government is dedicated to enhancing the quality of PPP projects by standardizing the concession contract template and approval criteria. Moreover, the government conducted a timely and prudent adjustment to PPP implementation. For example, as of March 2020, the number of PPP projects in the MoF database was 9,458 and the quality of PPP projects was preliminary controlled. In this sense, the Chinese central government seems capable of handling the PPP boom in a controlled way.

However, the real world is more complicated, as the central government is not the only stakeholder. Other players will react based on their own interests, which could conflict with the central government’s intention. Even in central-government departments, the emphasized priority and approach can differ. For example, the MoF pays more attention to local accountability for repaying debt whereas the NDRC focuses more on the strategic orientation for leveraging urban and rural development.

The thirst for investment by local governments will continuously trigger the fast growth of PPP projects to enhance local development and the promotion of officials. Local governments will do their utmost to mobilize private-sector actors to become involved in PPP practices, creating tension between the central and local governments. The central government must maintain and encourage high initiative on the part of local governments; in contrast, the central government should take appropriate measures to ward off chaos induced by PPP practice initiated too quickly. A better monitoring system and mechanism should be carefully designed and well implemented to keep the process going smoothly. This goal may not be easy to achieve, given the overall dynamic capabilities of local governments in manipulating PPP projects and their diversified demands due to different development stages.

Seeking high profits and quick returns makes private investors eager to cooperate with local governments to push PPP development in a quantitative way. As the share of private-sector actors increases, their voices and discourse will be commensurately louder and stronger, creating forces encouraging the generation of more PPP projects without considering quality control. As PPP projects implemented with inadequate preparation start to show their underperformance, societal criticism will increase. Scholars and media may urge governments to issue more policies and regulations to enhance the performance of PPP projects. The feverish impulse can thus be somehow balanced. The balance can be further reinforced by Chinese cultural characteristics of high adaptation and flexibility. Moreover, the aggregated huge population, economic volume, and territory scale make China relatively easier to be resilient in coping with possible debt crisis, as evidenced by China’s past success in tackling internationally induced financial crises in 1998 and 2008.

Market-driving forces from the economic transition, new urbanization, and diminishing local budget relief from selling land will continuously and further stimulate PPP development in the near future. But the core issue still lies between quality improvement and quantity expansion. The citizenship of about 200 million urban migrants, as mentioned above, and the goal of a quality 60% urbanization level by 2020 and 70% to 75% by 2035 will require gigantic investment in urban infrastructure construction and improvement. To accomplish these goals, a 40 trillion RMB (6.1 trillion USD) investment will be required⁹ by 2020, and more than 100 trillion RMB (15.2 trillion USD) will be needed¹⁰ by 2035.

Of the 100 trillion RMB, the total investment amount of 13.5 trillion RMB (2.0 trillion USD) from 11,182 PPP projects in the last 3 years used 13.5%, meaning there might be room for new PPP projects to enter the pipeline. As the Global Infrastructure Hub mentioned, “a stronger and more reliable pipeline provides greater visibility of the investment opportunity to allow the market to respond with appropriate capacity and capability, improving overall value for money.”¹¹ Keeping large numbers of PPP projects in the pipeline will be important to China’s future development. We cannot simply claim the current PPP boom is overheated. However, the absolute number of projects already in the pipeline is so large that it will take at least two decades for all the projects to be fully implemented, based on the average pace during the last 3 years. Even at the pace of 2015, we still need ten years. Therefore, PPP management for the coming years should focus more on those quality projects with larger investment scale while adopting a more standardized approach for the remaining projects.

Technically, payment mechanisms should also be carefully addressed. Although the market has good confidence in the government’s credit and financial capability, the user-charge model should be encouraged for those projects with sound profits that can fully cover and exceed cost, such as highways or expressways, water supply plants, and sewage treatment plants. Otherwise, the debt burden and risk of governments will increase over time. China enjoys the advantage of a much shorter period of implementation compared to other countries, which usually take too long in the bidding process and have a high initial fee subjecting them to criticism and influencing the efficiency of PPP-project implementation. However, this speed carries some potential risk during the operational process, such as poor management and low quality.

All in all, too short a period has transpired to give a concrete and precise assessment of PPP development and policy in China. Yet, the above arguments and discussion show a paradox that the boom tends to be feverish in the number of PPP projects in the last several years, whereas from the demand-and-supply perspective, the boom should be a rational impulse with adequate rationales. The Chinese government could be capable of managing the current PPP boom given the central government’s strong leadership, growing market forces, awakening public awareness for a resource economy and environment-friendly society, and the strengthened human-oriented approach.

To successfully manage the PPP boom and its implementation, the following quinary prerequisites must be met: (i) Design a vision-based PPP-implementation framework and a built-in monitoring system at the national and local levels; (ii) Keep consistent the strategic orientation of leaders; iii) Enhance the interdependence of public and private partners in strategic visioning, financing, and resource-sharing under fair competition (Savas, 1982) while preventing corruption; (iv) Strengthen institutional guarantees by ensuring the composition of a professional workforce; and (v) Consolidate management through various kinds of training at different levels. By meeting these prerequisites, potential risks in government debt, credit, quality supervision, and orderly management could be evaded.

Conclusion and Policy Implication

Through a policy-impact assessment based on the PPP-project data, we clearly show that a new PPP boom emerged in China following 2014. The new PPP boom possesses new characteristics in the following seven aspects, compared with PPPs in the past three decades: (i) engendered huge total and average investment scale; (ii) developed more projects intensively in central and western China; (iii) investment sectors were more diversified; (iv) BOT continued as the dominant contract type; (v) projects with a longer concession period received more welcome from the market; (vi) the government payment model prevailed, particularly for projects on municipal facilities and urban utilities; (vii) shorter tendering periods caused potential risks for a possible government debt crisis over time.

This study entailed conducting a comprehensive analysis of the new PPP boom and its underlying mechanism through the framework of recognition–rationale–response. The main findings follow. First, model, policy, and application after 2014 are more like a renewal than a fad, compared with the last 30 years in China. The research showed the new PPP boom is not feverish in essence, but rather a rational impulsive boom from the demand-and-supply perspective. Second, some rationales systematically form a mechanism to boost the new boom. Strong promotion of various levels of government is the decisive power of the new PPP boom, whereas the new urbanization campaign and higher requirements for quality urban infrastructure interact as market-driven forces. The interweave of the central government’s top-down process with the private sector’s bottom-up process, supported by stakeholders and professional talent, jointly encouraged the rational boom. Finally, the Chinese government could manage the impulsive boom well, as long as the quinary prerequisites can be achieved through powerful leadership by the central government, stronger adaptation and more flexibility in Chinese culture, and high resilience in addressing challenges and possible crises in a giant country in population, economy, and territory.

This study identifies and summarizes the characteristics of PPPs in China as different from those in Western countries based on data analysis. In addition, the analysis of the rationale of the new PPP boom in China contributes to the existing PPP knowledge body. In addition, analysis of China’s PPP policy and trends will help PPP companies and practitioners participate in China’s PPP market in a more careful and rewarding way.

In a larger sense, wide and comprehensive research on PPP issues will be continuously demanded. In particular, the following key issues should be urgently studied in a holistic and systematic way: (i) from a macro viewpoint, is there a universally applicable PPP practice norm internationally? If so, to what extent should different countries follow the norm without conflicting with their own localized conditions and developmental stages? Or should PPP practice be a local-specific approach from the very beginning? If so, China may have its own PPP development model with its unique characteristics. (ii) from a meso viewpoint, should PPP practice in China be regulated in a unified or standardized way? If so, to what extent should it be standardized? (iii) from a micro viewpoint, how should researchers perform more comprehensive comparative case studies across various countries and regions? What key lessons should be considered in a comparative study, such as factors, elements, stakeholders, management experiences, and operational characteristics?

This article begins to explore these factors. We cordially invite more theoretical and applied international comparative studies. In addition, the research method used in this paper was qualitative analysis. The processing of data at this stage mainly involves descriptive analysis, lacking rigorous causality testing and hypothesis verification. We intend to use quantitative analysis in subsequent research because the database already established in this study has a basis.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The research is sponsored by a grant of the National Natural Science Foundation of China (No. 71734001), the Humanity and Social Science Youth foundation of Ministry of Education of China (No. 18YJC630019), and the Key projects of scientific research plan of Department of Education of Shaanxi Province (No.20JT038).

ORCID iD

Zhe Cheng

Notes

Author Biographies

Jianming Cai is a professor in the Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences and University of Chinese Academy of Sciences. His research interests are urban sustainability development, PPP, regional planning and development.

Jing Lin is an assistant professor in the Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences. Her current research interests are in the areas of public private partnerships, Cultural Geography, and sustainability.

Zhenshan Yang is a professor in the Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences. His research interests are urban and regional planning, urban sustainability development, industrial planning.

Xinfa Zhou is a postdoctoral research fellow in school of economics at the Peking University. His research interests are public economics, development economics.

Zhe Cheng is a professor in school of public administration at the Xi’an University of Architecture and Technology. His research interests are sustainable urban development and governance, financial geography.

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