China’s PPP initiative must be made irresistible and less risky for private investors.
The stakes are high and important as China tries to loosen itself from the grip of domestic market instability and make efforts in balancing foreign funds and development revenues. The economy has embarked on a massive model of infrastructure development to curb rising local government debts by designing a broad-base policy to extract private capital from the market. The public private partnership (PPP) model as popularly called, is being set up to fund nearly 10.6 trillion yuan ($1.6 trillion) worth infrastructure projects such as roads, bridges, airports, water pipelines, energy, transportation, senior care among others. The move is assuredly enhancing, as it is intending to curb government debt and at the same time employ vast amount of private capital that can immensely beneficial. Private capital at the expense of government debt reduction, can put to use dry money, put capital to the right use of infrastructure development, and in the process register economic growth.
Analytically viewed, the capital used in PPP projects consist of public funds at large coming from the government’s kitty, and private capital is a transit from public investments to public service. As far as the intent of such projects are kept intact and the actions are completely aligned with the intent, delivery of PPP projects will only do good to the common public. However, the promise of long term profits to private capital owners in an attempt to attract them must be treaded carefully as any deviation in an interdependent country can play havoc on the earning capabilities of projects when completed, only pushing it further to give rise to litigations and conflicts. Even after major policy introduction for PPP projects, private investors are vary of coming forward openly to lay claim on many projects up from grab due to low returns and an element of fair access.
PPP projects are not new and have been used in many countries, but unless the local governments prepares layouts of how cities will change in the coming decades, private investors may be left with a concern to invest. Primary challenges in PPP projects remain the conflict of interest between private and government deployment of capital and their ideologies of developing a city and foreseeing its rapid change. When one oversees a requirement for one bridge in a city, the other would stress for two bridges anticipating the growth in car ownership. Lack of dedicated legislation for PPP projects is another issue that restricts flawless private investments. Both entities need to identify a common framework of aligning their primary objectives to have an implementable strategy with little or no disruption in execution.
PPP projects in China have just begun, and it is ambiguous to judge its outcome since factors affecting their execution and sustenance are more global than domestic, rendering their relevance at the mercy of how the country’s leadership manages to balance domestic and foreign fund flow and its trade. With slow advance of policy strengthening, enforcement laws, and diminishing of the line of conflict between the two entities, China can slowly set up a robust outlay for the execution of PPP projects that will deliver optimum benefits to its citizens and spend minimal time and money on litigation resolution.