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Rule changes to give boost to China PPPs

An attempt to attract more private investment into infrastructure projects will take effect at the beginning of next week.

New rules designed to lure more private capital investment into Chinese infrastructure projects take effect on 1st June.

The changes are being introduced by the National Development and Reform Commission (NDRC) planning agency which is seeking to open up sectors including energy, transport, water, environmental protection and urban utilities through the use of franchises.

The agency says it will “protect the legal interests of social capital and guarantee stability and continuity of franchising operations”.

Richard Laudy, head of infrastructure at law firm Pinsent Masons, says: “These rules are another sign of China’s efforts to cut red tape, encourage public-private partnerships (PPPs) and reduce foreign investment restrictions in the infrastructure sector.”

The promotion of PPPs has been a flagship policy since the “Third Plenum” (a meeting of top Chinese officials) in November 2013. This was part of a push to encourage more private investment into infrastructure and public utility projects.

However, uptake of PPPs in China has been notoriously slow. Pinsent Masons said in a statement there have been only 14 PPPs since 1993, with a total deal value of almost $4 billion. There are three PPPs currently in the pipeline: Beijing Subway Line 16, Chenghei Wastewater Treatment Plant, and Huazhou Sewage Treatment Plant.

Pinsent Masons also noted that three-quarters of Chinese PPP projects have been in the transport sector with only one energy PPP, Pucheng energy-from-waste plant, over the last two decades.

However, the law firm believes that the June 1st changes will provide greater financial security and better credit support from local banks and institutions. The rail sector in particular is tipped to attract investor interest given the government’s commitment to make a significant investment in the railway network.

“The next few years will see China open its gates to more investors looking for partnerships on lucrative infrastructure projects,” predicts Laudy. “Liberalising the financial services sector is the first step in the right direction to encouraging private investments and increasing investor confidence.”

In the first quarter of this year, China’s GDP growth rate fell to 7.0 percent – the slowest since 2000. The country requires some $6.8 trillion of investment to meet the demands of its urbanisation trend, with the proportion of Chinese living in cities set to rise to 60 percent of the population by 2020 from 53.7 percent currently.