The Rise of Public–Private Partnerships in China: An Effective Financing Approach for Infrastructure Investment?

• DOI: http://doi.org/10.1111/puar.13046
• Date: 01 July 2019
• Published date: 01 July 2019

514 Public Administration Review • July | A ugus t 201 9

Public Administration Review,

Vol. 79, Iss. 4, pp. 514–518 © 2019 by

The American Society for Public Administration.

DOI: 10.1111/puar.13046.

Jie Tan

Zhejiang University

Jerry Zhirong Zhao

University of Minnesota

The Rise of Public–Private Partnerships in China: An Effective

Financing Approach for Infrastructure Investment?

Abstract: The rise of public-private partnerships (PPPs) in China has spurred heated debates about their purpose

and effectiveness. This article traces the fluctuation of China’s PPPs over several decades and finds that PPPs have

played a supplementary role in China’s infrastructure investment, as a response to the pressures of fiscal shortfalls and

government debts. The resurgence of PPPs in recent years aims to bridge the infrastructure gap and alleviate ballooning

local debts. These expectations, however, are hard to realize. China’s PPPs mainly involve state-owned enterprises and

place increasing financial burdens on the government. The central government has taken measures to attract private

sector investment to mitigate the financial risk, but the prospects for PPPs remain unclear.

The number of public-private partnerships

(PPPs) in China has soared in recent years. By

October 2017, the government had initiated

14,220 projects with an expected total capital value

of 17.8 trillion renminbi (RMB) (about US$2.6

trillion). Taking place at an unprecedented scale in

global history, the boom of PPPs in China since 2014

has been promoted as a new financing approach in the

context of accelerating urbanization (Zhao, Su, and

Li 2018). Official statistics show that the share of the

urban population increased more than threefold from

1980 to 2017. This rapid expansion of urbanization

results in an enormous challenge for infrastructure

construction, which calls for large-scale monetary

investment. In China’s reform era, infrastructure

investment has been fueled mainly by local

governments adopting unconventional approaches,

such as land transfer fees (LTFs) and land-based

financing (Wu 2010). These approaches, however,

have led to concerns about the sustainability of the

financing structure (Zhan, de Jong, and de Bruijn

2017). Under these circumstances, PPPs, which offer

new hope for the Chinese government in promoting

infrastructure construction, have expanded sharply in

China.

Nonetheless, there are increasing debates on

the essence of PPPs and their performance in

infrastructure investment in the international and

domestic media (Brekelmans 2018; Zhang and

Ouyang 2015). Recent academic studies, usually

within the areas of project management and public

administration, pay attention to the quality of

PPP implementation by focusing on the drivers,

risk allocations, and critical success factors of PPPs

(Chou and Pramudawardhani 2015), as well as

the institutional environment (Zhang et al. 2015)

and private involvement (Wang et al. 2018). Little

effort has been devoted to revealing PPPs’ goals or

appropriateness in infrastructure investment. This

article aims to fill this gap. First, this article examines

the rise of PPPs in China since 2014, including their

scale, scope, and types. Second, in a longitudinal

context, we characterize the role of PPPs through

the lens of infrastructure finance capital structure,

which consists of fiscal revenues, governmental

debt financing, and PPPs. Lastly, we discuss the

effectiveness of PPPs as an alternative financing

approach in China.

Scale, Scope, and Types of PPPs in China

PPPs in China, which are dubbed “collaboration

between the government and societal capital,” have

grown at a staggering rate since 2014 under the

promotion of the Ministry of Finance (Zhang et al.

2015). The scale of PPPs in China before 2014 was

almost negligible, totaling 428 projects. That number

rapidly increased and almost doubled every half

year, reaching a total of 12,248 by the end of 2016.

Then the sharp expansion halted in mid-2017, when

the central government issued several policies to

control policy risk (see figure 1). After a six-month

clampdown on illegal PPP operation, by early 2018,

a total of 1,695 PPP projects, involving 1.8 trillion

yuan (about US$284 billion) of project finance, had

been terminated (Chen and Yuan 2018).

PPPs in China are defined as long-term contractual

collaborations between the government and societal

capital in the areas of infrastructure and public

Jerry Zhirong Zhao is associate

professor in the Hubert Humphry School

of Public Affairs, University of Minnesota

Twin Cities. He is also a research fellow in

the China Institute for Urban Governance,

Shanghai Jiaotong University, China.

E-mail: zrzhao@umn.edu

Jie Tan is a PhD candidate in the School

of Public Affairs, Zhejiang University. Her

primary field of research is public-private

partnerships, with a particular interest in

their practice in China.

E-mail: tanjie@zju.edu.cn

Viewpoint

Stephen E. Condrey

and Tonya Neaves,

Associate Editors