The rapid development of the public-private partnership (PPP) model is closely related to the central government’s efforts to address the issues of local government debt. Local governments have long invested in infrastructure and public services projects by taking on debt through financing vehicles. Such moves have fuelled economic and social development, but have also led to a host of problems such as a lack of control over the size of local debt, elevated financing costs, and the failure to include revenues and expenditures under budgetary management.
In 2014, the State Council issued the Opinions on Strengthening the Management of Local Government Debts, calling for rigorous management of local debt and expressly stating that governments should not take on debt via private or state enterprises. It is against such a background that PPPs have grown rapidly as a new public service supply model, which can guard against and address government debt risk.
Under the PPP model, the government selects private investors that are capable of investing, operating and managing infrastructure projects on merit by letting them compete against each other. The government and the selected private investors then sign contracts to specify their rights, obligations and interests based on the principle of equal negotiations. Private investors provide public services and the government pays corresponding consideration to them based on the results of public services performance appraisals.
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Huang Zaizai is a partner in the Beijing office of Tian Yuan Law Firm. He can be contacted on +86 10 5776 3979 or by email at firstname.lastname@example.org