简体中文
APDcolumnist|LingZou
InvestmentshasalwaysbeenthepillaroftheChineseeconomydespiteeffortstore-balancetowardsmoreconsumption.Infact,recenteconomicfiguresin1Q2016showamildreboundinfixedassetinvestments,growingby10.7%inthefirstquarterinsteadof10.2%inthefirsttwomonths.Infrastructureinvestmentshavealsopickedup,expanding19.6%YoYor4.6%fasterthanthefirsttwomonths.
Thatsaid,fixedassetinvestmentsaretypicallylinkedwiththe“oldgrowthmodel”,whichcouldleadtoexcessivecapacityintheindustrialsector.Chinaisindireneedtoupgradetheoldinvestmentmodelintoanewone.
Fromafundingperspective,oneofthekeycaveatsfortheinvestment-drivengrowthmodelisthatsomelocalgovernmentsorSOEshavetakenuptoomuchdebt,whichcouldpotentiallyleadtosystemicfinancialriskgoingforward.
TherehavebeensomenotablechangessinceMinisterLouJiweibecametheMinisterofFinance,whohasbeenakeenpromoterofthewideadoptionofpublic-private-partnershipmodelinmajorinfrastructureprojects.TheMOFalsostartedanewwebsitewww.cpppc.org,whichdisclosedPPPprojectsbyprovincewithsubstantialdetailsandisupdatedonabi-monthlybasis.
LoualsoencouragedmoreprivatesectorparticipationintheinfrastructuresectorduringtheWorldBank’sGlobalInfrastructureForumonApril16th,furthershowinghiskeensupportofthismodel.
LouduringtheGlobalInfrastructureForumwithfellowparticipants,source:Xinhua
A short historyofPPPinChina
PPPisneveranewterminologyinChina.ItisbelievedthatthefirstBOT(build-operatetransfer)projectinChinawasapowerstationinGuangxiProvincebackin1995.In2002,theoldMinistryofConstructionenactedthe“MeasuresfortheAdministrationontheFranchisingofMunicipalPublicUtilities”,whichledtoanotherwaveofBOT/BTinvestments.
Thatsaid,BT(build-transfer)wasthedominantformbackthen,whichneitherchangedthethefinancingpart(100%government-backedaftertransfer),norfacilitatingahealthypartnershipbetweenthepublicandprivatesector(privatesectorbeingonlythecontractorofthegovernment).Thatsaid,therehavebeensomemodelPPPprojectsthatwerefullyappreciatedbybothparties,oneofwhichbeingtheNo.4lineofBeijingMetro,built,participatedandinvestedbytheHKMTR.
MTRintroducedabunchofnewconceptstotheBeijingMetro,includingoveralldesign,interchangeatthesamelevel,modernticketmachines,helpdesk,etc.MTR’sChina/InternationalRevenuehasbeenstablein2015at12.6billionHKD,withanoperatingprofitof586millionHKD.
ThismodelprojecthasbeenoneofthekeysourcesofconfidenceforPPPmodeltobeimplementedatahealthy,constructiveandcommercialenvironment.
No.4metrolineinBeijing,source:CNS
LouwasnotonlyinspiredbytheBeijingMetrolinemodel.DuringhistenureastheheadofChinaInvestmentCorporation(CIC),thecompanyinvested10%ofstakeinLondonHeathrowAirportaswellasaminoritystakeinUKutilitygroupThamesWater.
ExpertsinthisindustrytoldusthatitwasduringtheseacquisitionsthatLoubecameconvincedthatChinashouldalsoadoptthesamebusinessmodeltorevitalizeandreshapeitsinfrastructureinvestmentframework,wheretypicallyefficiencyisinlackof.
Morethan8trillionRMBPPPinvestmentsonthepipeline
InNovember2014,theMOFpublishedanoticeonPPPoperationalguidelines(Chinese:http://jrs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201412/t20141204_1162965.html).Followingtheseguidelines,MOFalsoannouncedconsecutivelistofPPPmodelprojects(Chinese:http://jrs.mof.gov.cn/ppp/gzdtppp/201510/P020151012357758728335.pdf),whichcoverstransportation,municipalengineering,healthcare,environmentalprotectionandmultipleindustries.
NDRCalsopublishedrelevantguidelinestoencouragePPPschemes.Thetop-downsupportfromMOFandNDRCisunprecedented,especiallycomparedtothePPPboomintheearly2000s,whenguidanceisonlyinitiatedbyasingleministrythathadlimitedinfluence.
Meanwhile,MOFhasmadestrenuouseffortstomakedisclosuremoretransparentandregular–theestablishmentofthecpppc.orgwebsiteanditsregularupdategivesusanoverviewofthecurrentPPPinvestmentlandscapedomestically–asofJanuary31st,6997projectsweredisclosed(MOFannouncedasecondbatchbyearlyApril,extendingthenumberto7704projects,butwithoutastatisticaloverview),implyinganinvestmentamountof8.1trillionRMB.
Guizhou,ShandongandSichuanledintotalprojectsandinvestmentamountintermsofprovinces.Industrywise,municipalengineeringranksthetopintermsofnumberofprojects,whereastransportationisthesectorwithhighestimpliedinvestmentamount.
PPPinvestmentsbyindustryintermsofprojects
PPPinvestmentsbyindustryintermsofvolume,RMB
Intermsoffundingoptions,42.3%ofthetotalinvestmentwillbepaidbyusers,whereas35.8%willbeusingviabilitygapfunding–whichmeansitispartiallyfundedbyusers,withtheremainderfulfilledbythegovernment.
Government-onlyprojectswereaslessas21.25oftotalinvestment,orlessthan1.8trillionRMBoutofthe8.1trillionRMBtotal.
AlthoughthereareenoughreasonstobeoptimisticabouttheongoingPPPschemesacrossChina,lessthan10%oftheprojectshavebeendowntotheexecutionphase,whichmeansalotoftheinvestmentslistedheremightstillbeexploratoryandmightnotcomedowntothefinishline.
Potentialrisksmightevolvewhenprojectsmaterialize
Fromtheperspectiveofthecentralgovernment,itmakesalotofsensetopromotethePPPscheme,asitreducesthedebtburdentotheprojectcompanylevelinsteadoflocalgovernments;meanwhile,ifrightincentivesareoffered,privatesavings/investmentswillbemorethanwillingtoinvestinsomeprojects,asthey“guarantee”yieldsduetomostofthembeingutility-relatedprojects.
Localgovernments,however,mayhaveadifferentperspective,astheyaretheoneswhoarehandlingallthepotentialrisksandmanagingprivateenterprises’expectations.
Theprimaryriskisthepotentialriskofunderpaymentbythelocalgovernments–waterutilityprojectsinChinahassufferedfromtheinabilitybythelocalgovernmentstoraisewatertariffs–amuchneededbuthighlycontroversialmove;localgovernmentsmayalsobeoverstretchedintermsofcapabilitytomanagePPPprojects,leadingtopotentiallossofinvestors.
Meanwhile,legalrisksmightevolveasfranchisinglawsinChinaareunderdevelopedorlackofenoughcasestobringaboutacomprehensivereform.The“trialanderror”approachseemstobetheonlywayforwardhere.
Thereisalso“key-man”risk,aslocalgovernmentofficialstendtohavealotofpowerindecidingthefateofcertaininvestmentprojects,whichmaychangedramaticallyafterhe/shemovedtoanotherofficialpost.
Alloftheserequiresabetterregulatoryandfinancialframework,withcooperationfrombothlocalgovernmentsandprivateenterprisestoputittogether.
Privateenterprisesshineinenvironmentalprotectionsector
SOEshavenormallytakentheleadinPPPinvestmentsintransportationandmunicipalengineeringsectors,duetoitssheersizeandcapital-intensivenature.However,environmentalprotectionindustrymightbeoneoftheanomalies.
TakeBeijingOriginWater(300070-CH)asanexample–itisoneoftheleadersofmembranebio-reactorwatertreatmenttechnologyinChina.Thecompanyhasseenitsrevenuegrowingbymorethan5timesin5years’time,thankstoitsdeepinvolvementwithanumberoflocalgovernmentsonwatertreatmentprojects.
Bytheendof2015,OriginWaterhasestablishedmorethan40PPPprojectcompanieswithvariouslocalgovernments,withatotalprocessingcapacityof15milliontonsandcovering60millionpopulation.
Oneofthecompany’sprojectcompanywithYunnangovernment,YunnanWaterInvestment(6839-HK)isoneofthefirstPPPprojectcompaniestogetlistedontheHongKongStockExchange.Theprojectcompanyhasseenitsrevenuegrowingby41.6%YoYto1.6bilionRMBin2015,andnetprofitgrowingby68.9%to317million.
WaterTreatmentPlant,source:OriginWaterCompanyWebsite
Despitetherobustgrowthinthepastyears,thecompanyisalsowellawareoftheriskinthePPPmodel–initsannualreport’srisksectionitwrote“PPPisnotasimplejointventure,it’smorelikea‘marriage’.Andifonecannotreachthe‘win-win’situation.
ItwillleadtosubstantialriskinthePPPmodel,fromwhichOriginWaterhastakenlessons.”PPPmodelwillcertainlyarrangemarriagesforthousandsofprojectsandcompanies,butcannotevadefromtheriskofdivorcegoingforward.
Ling Zou is the founder of
cnspoon.com
, a business-focused news & commentary website dedicated to provide more up-to-date, on-the-ground and actionable information for global readers. Its content ranges from macro economy, business sentiment to specific industries, such as properties as well as entertainment and filming. Johnny currently works for a China-focused private equity firm in Hong Kong. He received his bachelor's degree in 2010 from Yale University with distinction in History major and Master of Science Degree in 2011 from London School of Economics with distinction in Economic History. He was originally from Shanghai, China and can speak four languages Chinese, English, French and Japanese.
