An Active and Standardized Use of PPP Models to Improve High-Quality Supply of Public Services and Bolster Areas of Weakness


Speech at the 4th China Public Private Partnerships Financing Forum, November 22, 2018


By Jiao Xiaoping

China Public Private Partnerships Center


President Mr. Ren Deqi,

Director Mr. Wang Xiangming,

Distinguished Guests,

Ladies and Gentlemen,

Good morning! I am delighted that we gather again in the 4th China Public Private Partnerships Financing Forum, to discuss, under the new circumstances with Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as the guidance and putting into action the guiding principles of the Nineteenth National Congress of Communist Party of China, an active and standardized use of PPP models to diversify supply of public services and improve its quality and efficiency to satisfy the growing needs for a better life of the Chinese people. Here I would like to, on behalf of the organizers and co-organizers of this Forum, extend the welcome to all of you, and express our gratitude towards all the parties from the Shanghai Municipality who have accorded support to this Forum.  


Here is a five-minute video clip, which I believe can better review our work on PPP in the last year.


We can see that, featuring standardizing PPP market and resolving risks, the last year has seen a sea change and transition to a new era. Thanks to the decisions and plans by the Party Central Committee and the State Council, which timely put an end to the disorder of PPP market, and thanks to all sectors across the market which cooperated with the Ministry of Finance to bring back order in the PPP market, we therefore can cast eyes toward the future on a solid ground.


Today, on behalf of the China Public Private Partnerships Center of the Ministry of Finance, I would share with you four aspects.


First is my interpretation of the theme of this Forum -- New Era, Good Era, Grand Era. It is a new era because as President Xi Jinping has emphasized in his Report at 19th CPC National Congress that “Socialism with Chinese characteristics has entered a new era”, PPP reform being part of our concrete commitment to comprehensively deepening reform also entered a new era of high-quality development. It is a good era because as President Xi Jinping pointed out that “Happiness is achieved through hard work”, we must work hard both to advance development through innovation and prevent risks through standardization in this new era so as to create a good era for PPP. It is also a grand era. President Xi Jinping pointed out that “we are closer than at any time in history to realizing the goal of the great rejuvenation of the Chinese nation”. A review of experiences in China’s reform and opening-up over the past four decades tells us that only through reform and opening-up can China become prosperous and strong. Practices in PPP Reform over the past five years also show that we should be more courageous and determined to reform, transform government functions, stimulate market vitality, and be more open to integrate into the international market so that PPP can enter this grand era of booming development.


The following three aspects, which comprise my keynote speech today, are a review of the PPP reform over the past five years, regulatory measures and risk prevention and resolution, and finally, a look at the way forward.


Ⅰ. PPP Reform is an Institutional Reform in Advancing Modernization of National Governance, and Has Seen Remarkable Achievement in the Past Five Years.

1. A Pioneer in Comprehensively Deepening Reform

After the 18th CPC National Congress, China has started a new round of comprehensively deepening reform to advance the modernization of China’s system and capacity for governance. To enable the market to play the decisive role in resource allocation and to give better play to the role of government, by furthering market-oriented reform in supply of public services, coordinating both government and private resources, and unleashing benefits from streamlining administration, delegating more powers, improving regulation and providing better services, PPP Reform advanced administrative, fiscal and investment and financing reform. It also sped up addressing weaknesses in supply of public services by improving the quality, efficiency and driving forces of economic development.


According to the National PPP Comprehensive Information Platform, by the end of October, 2018, 4,302 projects were procured across the nation over the past five years, with the investment totaling to 6.6 trillion yuan covering 19 sectors including municipal works, transportation and environmental protection. Among them, a healthy number of infrastructure projects and projects of basic public services are completed and in operation, bringing to people a strong sense of fulfillment and happiness through innovative development.


2. Raised Efficiency in Supply of Public Services in All Respects Through Innovating Mechanisms

Through adopting new mechanisms such as Full Competition, Whole Life-Cycle Management, Risk Allocation and Performance Payment, many institutional problems that were tough and persisted for long such as over-budgeting of infrastructure project, prioritization of construction over operation and ill-implementation of fiscal performance management were addressed.


As of the end of May, 2018, the total investment of China’s PPP projects evaluated by Value for Money Evaluation was around 7.4 trillion yuan, saving 1.6 trillion yuan--18%--compared to government direct investment.


3. New Models, New Forms and New Technologies Cradled by A Reinvigorated Market

By lowering threshold, breaking monopoly and encouraging competition, PPP Reform could ensure open, fair and transparent competitions for businesses under all forms of ownership, totally unleashing the creativity and innovation for social capital with businesses striving to outrun each other. Subsequent application of a considerable batch of new models, new forms and new technologies diversified the method, improved the quality and decreased the cost for supply of public services. EOD Model, for example, exemplifies the practice of President Xi Jinping’s idea that “Clear waters and green mountains are as good as mountains of gold and silver” in PPP. Such practices like Integrated Development of County-level Industrial Park, Integrated Treatment of Urban and Rural Sewage and Waste and Distributed Sinking Regenerative Water Treatment Technology are many.


PPP Reform has blazed a new trial for private enterprises to do new business. By the end of of October, 2018, among 7,029 social capitals which participated in PPP projects, 48% of them come from private sector, HongKong, Macao, Taiwan, and foreign countries. Investment from private sector, HongKong, Macao, Taiwan and foreign companies in markets which were opened earlier and in sewage and waste treatment which has a clear mechanism for generating returns make up 82% of its total.


4. Globalized Development in Furtherance of the Belt and Road Initiative

The implementation of China’s PPP Reform features openness and mutual learning. Based on China’s realities and development stage and actively drawing on experiences internationally, it integrated international common practice into China’s project management model. According to the report “Procuring Infrastructure PPPs 2018”released by the World Bank Group, China ranks the upper middle level in the PPP institution and practice among 135 economies worldwide .


Now, a mechanism for sharing good practices on PPP has been incorporated into multilateral cooperation and governance systems such as APEC, G20 and BRICS. China’s Ministry of Finance has established a cooperation mechanism with international institutions such as the World Bank Group, ADB, UNESCAP and UNECA, as well as the US, the UK, South Korea and countries along the Belt and Road. During this Forum, our Center would sign memorandum of cooperation with two international institutions and one foreign governmental agency to support the Belt and Road Initiative. We would also hold promotional events for PPP projects in Asia-Pacific countries, where participants responsible for 78 projects from five countries can have face-to-face dialogues with Chinese investors. I would say that one of the highlights of this Forum is its level of internationalization as it involves 13 countries and 7 international organizations.


Ⅱ. Only by Regulating Development and Strictly Controlling Risks Can the Future of PPP be Steady and Promising.  

Irregular misuses of fiscal funds surfaced in some local governments in the course of PPP Reform. After the National Financial Work Conference in July, 2017, required by the plan by the Party Central Committee and the State Council, the Ministry of Finance took quick and unswerving steps to clean and regulate the PPP market, putting an end to such irregularities.


1. Commitment to Preventing and Resolving Major Risks

From last August, the Ministry of Finance has published a series of regulations: it set up a real-time responsibility monitoring system and risk warning mechanism for government spending of PPP projects at central, provincial, municipal and county level; it carried out a thorough check-up for the financial spending responsibilities and included the financial spending responsibilities of PPP project into fiscal budget management at all government levels; and it shut the door for new projects in areas whose ratio of annual government spending on PPP projects to public budget went beyond the Red Line of 10% .


Currently, of 2,461 areas where PPP projects were implemented, only six have their ratios over the Red Line. From 2014 to 2018, the highest annual spending ratio of governments in all provinces, autonomous regions and municipalities was below 5.1%. The PPP project risk overall was controlled within a safe range.


2. A Tough Stance on Curbing Irregularities in the Development of PPP

From the outset of the special regulatory program we launched last year to this October, 2,428 Projects with a total investment of 2.9 trillion yuan were removed from the Project Database. 2,005 projects, which account for around half of the total in the Project Database, with a total investment of 3.1 trillion yuan, were rectified and improved. 48 serving consultancies and 13 experts were delisted from the Institution Database. After a verification of the first three batches of 752 demonstration projects, 30 were stripped of the title of “demonstration project”and removed from the Database, another 54 were removed from the Database and 89 were rectified and improved. These efforts were harsh yet inevitable to guarantee a steady and promising future for PPP.


3. Normalized Regulation of Non-compliances and Prevention of Risks

First, we refined the entry requirements for new projects by elaborating the positive/negative list for entry verification, upgrading the review process, enhancing the review responsibility at the provincial level and enforcing cross-review at all levels, so that the quality of new projects entering the Project Database was guaranteed. In early exploratory works on PPP, we put the emphasis on project promotion, giving insufficient attention on risk control. After last year’s the National Financial Work Conference, we ensured risk control being implemented abreast of innovation-driven development. Earlier, removal of some projects, which a good number of institutions took as the criteria of risk control since they already entered the Database, brought about uncertainties to financial institutions and investors. Therefore, we would use a more scientific and sustainable standard so that such uncertainties would not be repeated in the future. You are also encouraged to supervise us. Second, we enforced the management responsibility for demonstration projects, and strengthened the dynamic management and periodic assessment so that the implementation went to plan. Third, we enhanced information disclosure through enlarging the scope of disclosure and improving information quality and diversifying the channels and methods for public oversight so as to build an open and transparent PPP market.


4. Stringent Mechanisms to Manage Performance

First, We strengthened the performance review of projects in the Database, and removed or rectified projects whose financial spending responsibilities were not linked to their performance. Second, we laid down a guideline for project performance management, improved the framework of basic performance index and built a system of it according to different industries, sectors and levels. Third, we built a performance management chain for the entire project life-cycle to enforce performance accountability. Fourth, we improved the VFM Evaluation guideline by carrying out a comprehensive quantitative assessment and analysis.


Ⅲ. PPP Reform Shall be Carried forward in An Active and Standardized Way to Improve and Diversify Supply of High Quality Public Services at Different Levels.

As an important part of our effort to control the scale of new debts, enhance the debt ceiling management and budget management, improve risk warning and exigency handling, investigate and deal with illegal financing guarantee and hold those responsible to account at local levels, PPP is an active, efficient and precisely-targeted fiscal policy. But the spending is not unlimited, and therefore we must not touch the Red Line of 10%. PPP can help break monopoly, lower threshold, give full play to the decisive role of the market and unleash its vitality, as well as improve allocation of market resource through government finance.


Coming to the next stage, with Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as the guiding principle and supply-side structural reform as the major goal, we will continue to deepen reform, and holding firm the problem-based approach, maintain the stability in job market, finance, foreign trade, foreign capital, investment and expectation and step up our effort to bolster areas of weaknesses in high-quality supply of public services, so that PPP model can play an active role in maintaining a stable growth, advancing reform, adjusting structure, improving people’s well-being and preventing risks.


1. Enhancing Collaboration to Further Improve Policy System

First, in cooperation with the Ministry of Justice, we shall accelerate the introduction of the “Regulations on PPP, align top-level design and speed up building a united market. Second, we will issue Opinions on Compliant Development of PPP to stabilize the market expectation by further clarifying the policy boundary and development priorities. On one hand, we will put into practice the decisions and plans by the Party Central Committee and the State Council ; on the other, we will send four signals to the market: a) the financial spending responsibility of project whose spending is under the Red Line of 10% and project compliant with the law does not constitute a hidden debt; b) elaborating the positive/negative list is beneficial to monitoring and supervision by all parties and to ensuring stable implementation; c) sectors enjoying prioritized support will be made clear; and d) implementation of the Red Line would be toughened, the financial spending responsibility for projects which have been signed into effect and compliant with regulations and the law will be included in the budget and the government shall take the lead in performing their obligations. Third, we will improve the PPP guideline, VFM Evaluation guideline and financial affordability assessment guideline, issue PPP risk control guideline, PPP performance management guideline and a standard contract for projects of sewage and waste treatment, and build a standard system for PPP project management to strengthen the basic market capability.


2. Strictly Keeping the Spending Below the Red Line and Prioritizing Support for Projects that Bolster Areas of Weaknesses

First, we will furnished enforce management of financial affordability and enhance real-time monitoring on financial spending responsibility to keep the spending ratio below the Red Line. Second, the PPP spending responsibility will be included in the fiscal budget management in accordance with the law so as to urge the governments to improve their obligation performance and hold them accountable. As long as a social capital which has signed a contract with the government in compliance with the law and regulations delivers required performance, the government must make its payment. Third, we will focus on implementation of major projects at the central government and prioritize projects that bolster areas of weakness such as environmental protection, poverty alleviation, people’s livelihood and rural revitalization. We will make best use of the targeted fiscal policy so as to guarantee result at the macro-level and efficiency at micro-level.


3. Ramping up Support for Policy to Boost Confidence for Social Capitals to Invest

First, we will improve the use of special funds from the central financial authorities, increase the overall coordination and integration of fiscal funds, guide local governments in optimizing their spending structure. The central financial authorities will help local governments through special funds to solve the problem of insufficient registered capital of some PPP projects, a batch of which related to environmental protection and are in compliance with the law will be soon selected from the Project Database. Second, we will increase the investment from insurance funds and China's PPP funds to the project equity, broaden the channel of capital source and make use of remnant capitals by encouraging equity transfer, asset trading and asset securitization to diversify the entry and exit channels for social capital. Third, we will make it fair for all private enterprises to participate in. In some promotion events for projects at local levels, we’ve heard of some saying that “No bread, only crumbs.” Since PPP is a means of improving quality and efficiency, local governments should therefore work harder to promote quality projects for private enterprises. They enjoy equal access to our fiscal policies and the ratio of their participation in China’s PPP funds investment to public enterprises shall be increased.


4. Strengthening the Governments Ability to Supervise and Service the Market with a Focus on Improving Market Efficiency

We will upgrade the National PPP Comprehensive Information Platform in all respects, strengthen the government’s ability to supervise and serve the market and improve its information disclosure so as to ensure proper scale and controllability of investment and curb the conundrum-like extensive development which would end up in disarray if left to its own devices and die if not. We will look for new ways to co-found and co-manage PPP projects with financial institutions and social capitals, and, by using information technology such as big data with the focus on asymmetric information, improve the market efficiency in resource allocation so as to address the problem of difficult and costly financing.


5. Deepening International Cooperation to Promote Investment for the Belt and Road Initiative Projects

We will actively participate in global governance, use multilateral mechanisms to promote market opening and facilitate investment, and strengthen exchange and mutual-learning of systems and practices. We will utilize the PPP cooperation network jointly established by the Ministry of Finance and UNESCAP and UNECA to strengthen institution construction and training cooperation for countries within the same region and integrate resources from multilateral development banks, government development banks and commercial financial institutions so as to help have infrastructure projects in countries along the Belt and Road procured.


Finally, I wish this Forum a complete success and wish every success in your work and good health! Thank you!