The Public-Private Partnership Model, a New Trend in China’s Urbanization
Introduced to China in the late 20th century, the development of the Public-Private Partnership (PPP) model has reached an unprecedented peak over the last four years. The Chinese government announced the establishment of the China Public Private Partnerships Center (China PPP center) under the Ministry of Finance (MOF) in 2014, and has issued numerous PPP-related documents to encourage private investment in public services and infrastructure.
By the end of 2017, the China PPP Integrated Information Platform had recorded 14,224 PPP projects, with an accumulated investment of RMB 18.2 trillion, according to the 2017 annual report of national PPP projects.
The PPP model refers to long-term collaborations between public authorities and the private sector to provide better public services and infrastructure. The private sector is able to mobilize the financial capability, technologies and expertise to help governments offer adequate and high quality services. In this way, the private sector can participate in the public service market, meanwhile, the government can relax fiscal pressure. The PPP model breaks the government’s monopoly in public services; the two partners have equal status in the market, and are jointly responsible for investment, construction and operation of public projects, which in turn allows for a better risk spread.
PR Newswire has reported that the United Nations Economic Commission for Europe (UNECE) recently selected Gu’an New Industry City, a well-developed urban comprehensive development PPP project in Hebei, as one of the 60 successful UN sustainable development PPP cases.
Located 50 kilometers south of Beijing, Gu’an was once one of the poorest cities in Hebei, prior to 2002. After the China Fortune Land Development (CFLD) – a leading industry city operator in China – arrived in Gu’an and initiated the construction of the New Industry City, Gu’an has been transformed from a county (xian) dominated by traditional agriculture to an innovation-driven smart city with advanced industries – aerospace, biomedical, high-end equipment manufacturing, etc.
Through the PPP model, CFLD has helped Gu’an achieve a city-industry integration while jointly assuming – with the Gu’an government – responsibilities for urban planning and design, development of public facilities, etc.
Today, Gu’an New Industry City stands as a model for the New-Type Urbanization (xinxing chengzhenhua) and also a good example for other industry cities, like Jiashan in Zhejiang, another PPP project conducted by CFLD and the local government. Jiashan New Industry City has now in large part realized its blueprint, started in 2013. The small town, once known as “the land of fish and rice” near Shanghai, has been transformed into a new regional hub for technological innovation.
Despite a PPP model boom in China, “hidden risks” have also been revealed in practice: overemphasis on construction at the cost of long-term operation, a lack of performance assessment, unreasonable risk allocation, to name but a few. Furthermore, private companies are more willing to invest in projects in or near bigger cities where the legal and political investment environment is more stable. In addition, different actors such as local government, private enterprises, intermediary organizations often suffer from a lack of standardization and respect of the legal system.
Recently, in order to minimize these hidden risks, the MOF issued a notice on further strengthening the management of demonstration PPP projects.