Key changes in the urban infrastructure sector

The infrastructure concession sector in China has, in terms of legislation, always been a blank slate, and in terms of policy has swung like a pendulum, from encouragement at the outset, then wavering in the middle, and more recently, expressly permitted. The Third Plenum of the 18th Central Committee of the Communist Party of China expressly indicated that “private capital is permitted to participate in urban infrastructure investment and operation through such means as concessions, etc.”, manifesting a new era will begin.

Key investment sector changes

One of the major changes in infrastructure projects in future will be the change in investment projects from above ground to underground. In the past few years, such incidents as urban surface subsidence, disastrous inland inundations, bridge collapses, natural gas line explosions, etc., have occurred from time to time. Urban underground pipe networks, including those in Beijing, have seriously degraded with age, severely affecting the normal operation of cities. Document Guo Fa [2013] No. 36 issued by the State Council expressly states that the principle of urban infrastructure construction is “first underground, then above ground”, and the key sectors for investment will converge on the construction of infrastructure that is intimately connected with people’s day to day lives, such as that for water, gas and heat supply, power, communications, public transport, logistics and distribution, and disaster prevention, as well as the improvement of old and dilapidated infrastructure.

Investors and governments maturing

From the nearly 50 concession projects in which the first author rendered services between 2003 and 2013, she believes that with the accumulated practical experience in concessions throughout the country, both governments and investors have gradually matured. Initially, certain governments deemed that the BT (build and transfer) method was advancing funds and construction, and simply viewed the investors as the parties that advanced the funds and did the construction, whereas now, the expertise of quite a few city governments in handling BT and BOT (build, operate, transfer) projects is relatively mature, with several tens of provinces and municipalities – including Beijing, Shenzhen, Zhengzhou, Fuzhou and Haikou – having issued regulations specifically for concession projects. Governments are starting to pay close attention to the bid invitation and submission process for concessions, and also close attention to the method of selecting the design, supervising and auditing entities and emphasising overall control of construction quality and pricing of projects.

Wang Jihong is an executive partner and Liu Ying is a paralegal at Grandway Law Offices