Greater implementation of PPP projects seen in 2015

Chinese local governments are making progress in making proposed public-private partnership (PPP) projects into realities, said a finance official.

Jiao Xiaoping, vice director-general of PPP Center under the Finance Ministry, told a Monday forum that projects endorsed by the ministry last year have seen a higher implementation ratio than those approved in 2014.

The PPP model is championed by the Chinese government as a preferred form to invite non-public capital to participate in infrastructure building and public utility projects. The first batch of 30 "role model PPP projects" was announced by the Ministry of Finance in Nov 2014, and was worth 180 billion yuan. It selected the second batch of 206 "role model projects" last Sept that were worth a total investment of 65.9 billion yuan.

However, actual implementation, after local governments opened for bids, was low. A survey by Minsheng Securities said that of the 1.6 trillion yuan worth of PPP projects announced, only 210 billion yuan worth, or 13 percent, have had contracts in place by March 2015.

Jiao said given the complexity of PPP projects, the public should not have an unrealistic expectation on the implementation ratio. "Even if the implementation rate is 20 percent, a 10 trillion portfolio of projects could still have 2 trillion yuan in place--that's remarkable," he said.

"Projects included in last year's basket have a higher implementation ratio," Jiao disclosed, without naming a specific number, adding that the ministry is vetting the third batch projects, which is expected to be released this year.

Zhang Linwei, an official with the Ministry of Housing and Urban-rural Development, said PPP in China's infrastructure sector has huge potential. He cited that in 2014 nationwide property investment was 9.5 trillion yuan, while urban infrastructure, including water, heating, gas and so on, was just 1.64 trillion yuan--the international desired proportion between the two sectors, however, is 1:1.

The largest obstacle to attracting social capital , Zhang said ,is the rate of return.

"If the project promises an above 10 percent annual return, all the sources of capital showed interest. Once the return rate is lowered to below 8 percent, only State-owned enterprises showed interest," he said. "Private companies seek short-term return. They fear that the project could be in peril once the local top leadership changes."