Regulating local government financing vehicles and public-private partnerships in China

Hui Jin; Isabel Rial

doi:10.24294/jipd.v1i2.67

Regulating local government financing vehicles and public-private partnerships in China

Hui Jin, Isabel Rial

Article ID: 67
Vol 1, Issue 2, 2017

VIEWS - 1323 (Abstract) 651 (PDF)

Abstract

In this paper, we argue that there is much room for China to strengthen its regulatory framework for public-private partnerships (PPPs). We show that infrastructure projects carried out through local government financing vehicles (LGFVs) are largely unregulated PPPs, and significant fiscal risks have already manifested themselves. While PPPs can potentially provide efficiency gains, they can also be used by governments to circumvent budgetary borrowing constraints. Therefore, effective PPP regulation is key to delivering PPPs’ benefits while containing their potential fiscal risks. The authorities have taken concrete steps in order to establish a sound regulatory framework and foster a new generation of PPPs. However, to make the framework effective, we highlight a few issues to be resolved. Based on international best practice, we propose a four-pillar regulatory framework for China, which could be implemented gradually in three stages.

Keywords

fiscal risk; public investment; subnational government

Full Text:

PDF

References

Cangiano M, Curristine T and Lazare M (2013). Public financial management and its emerging architecture. Washington, DC, USA: International Monetary Fund.

Funke K, Irwin T and Rial I (2013). “Budgeting and reporting for public-private partnerships”. OECD Discussion Paper No. 2013/07. Paris, France: Organisation for Economic Co-operation and Development.

General Office of State Council of People’s Republic of China (2015). (Mandarin) “[Notice of instruction on promoting public–private partnerships in public service]”. No. 2015/42. http://www.gov.cn/zhengce/content/201505/22/content_9797.htm.

Guasch JL (2004). Granting and renegotiating infrastructure concessions: Doing it right. Washington, DC, USA: World Bank. doi: 10.1596/0-8213-5792-1.

Hemming R, Cangiano M, Anderson B, et al. (2006). Public-private partnerships, government guarantees, and fiscal risks. Washington, DC, USA: International Monetary Fund.

International Monetary Fund (2007). Issues paper on public-private partnerships and fiscal risks. Washington, DC, USA: IMF.

_____ (2011). Public sector debt statistics: Guide for compilers and users. Washington, DC, USA: IMF.

_____ (2012). Fiscal transparency, accountability, and risk. Washington, DC, USA: IMF.

_____ (2014). Government finance statistics manual. Washington, DC, USA: IMF.

International Public Sector Accounting Standards Board (2011). “IPSAS 32: Service concession arrangements: Grantor and annual improvements standards”. New York, NY, USA: International Federation of Accountants. https://www.ifac.org/news-events/2011-10/ipsasb-approves-ipsas-32-service-concessionarrangements-grantor-and-annual-impr.

Lou J (2015). “Explanation on request for approval of the 2015 local government debt ceiling”. Beijing, China: National People’s Congress of the People’s Republic of China. http://www.npc.gov.cn/npc/xinwen/201509/07/content_1945886.htm.

Ministry of Finance of the People’s Republic of China (2014). (Mandarin) “[Operational guidelines for public–private partnerships (pilot)]”. No. 2014/113. http://jrs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201412/t20141204_1162965.html.

National Audit Office (NAO) of the People’s Republic of China (2013a). “The audit result of 36 local government debt”. No. 2013/24 (166). http://www.audit.gov.cn/n5/n25/c63632/content.html.

_____ (2013b). “The audit result of the whole country’s government debt”. No. 2013/32 (174). http://www.audit.gov.cn/n5/n25/c63642/content.html.

National Development and Reform Commission (NDRC) of People’s Republic of China, et al. (2015). (Mandarin) “[Administration method for concession in infrastructure and public works]”. No. 2015/25. http://zfxxgk.ndrc.gov.cn/PublicItemView.aspx?ItemID={1597732e-e783-440b-ad4c-0494afa17fad}.

Organisation for Economic Co-operation and Development (2010). Dedicated public–private partnership units: A survey of institutional and governance structures. Paris, France: OECD.

_____ (2012). OECD principles for public governance of public–private partnership. Paris, France: OECD. http://www.oecd.org/governance/budgeting/PPPRecommendation.pdf.

Schwartz G, Corbacho A and Funke K (2008). Public investment and public–private partnerships: Addressing infrastructure challenges and managing fiscal risks. Washington, DC, USA: International Monetary Fund.

State Council of the People’s Republic of China (2010). (Mandarin) “[Notice on strengthening the management of local government financing vehicles]”. No. 2010/19. http://www.gov.cn/zwgk/2010-06/13/content_1627195.htm.

Wang SQ, Ke YJ and Xie J (2012). “Public private partnership implementation in China”. In: Winch GM, Onishi M and Schmidt S (eds.), Taking stock of PPP and PFI around the world. London, UK: Certified Accountants Educational Trust. p. 29–36.

DOI: https://doi.org/10.24294/jipd.v1i2.67