China’s Ministry of Finance is tightening controls over the country’s massive PPP programme amid fear of rising debt risks from potential abuses of the PPP model.
Last Thursday, the MoF issued a notice to provincial and regional governments to overhaul their existing PPP projects and tighten approvals for new schemes.
Existing projects that fail to conduct return-on-investment evaluation or fiscal stress tests will be “disqualified” and wiped from the national database by March 2018, according to the notice. Other criteria for such “unqualified” projects include insufficient information transparency, exceeding fiscal spending caps and involvement of illegal debt guarantees.
The ministry said new projects that do not involve public services should not be implemented under the PPP model. It also said projects that have national security issues and those of significant public interest are not suitable for private sector participation, as well as schemes with poor preparation work and lack of an effective payment mechanism.
Jiangsu’s finance bureau was the first to issue regulatory papers regarding the province’s PPP projects, particularly those entirely relying on government subsidies, to prevent the model from becoming an alternative channel to raise debt.
Several subway PPP projects in Inner Mongolia, worth billions of dollars, were scrapped in the past few months due to concerns over finances, according to local reports.
Since 2014, China has been promoting PPP financing to attract private sector capital and avoid regional governments overleveraging for infrastructure investments and urban development.
It established a dedicated PPP center and the national database grew to a total of 14,220 PPP projects with a combined value of 17.8 trillion yuan ($2.68 billion; €2.28 billion) as of this September, according to the China Public Private Partnerships Center.