Use of PPP transaction structure by civil airports in China

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The rapid development of civil aviation in China has presented the development of civil airports with unprecedented opportunities. As of 2015, China is to construct 82 new airports, relocate another 15 and renovate or expand another 101, for a total investment of RMB425 billion (US$67.5 billion). China’s civil aviation industry will continue its rapid growth, leading the world in the coming 20 years.

The current source of funds for the construction of airports in China is resolved jointly from local finances, civil aviation development funds and credit, and enterprise investment. Normally, one-third will be allocated by the Civil Aviation Administration of China (CAAC), one-third will take the form of a capital contribution by the local government and the remaining one-third will be raised by the airport itself. Within this is included both direct investment from the finances of governments at various levels and platform company loans/enterprise investment.

But given that total local government debt has currently reached RMB1.6 trillion, the previous model that essentially relied on government investment in airport construction has hit hard times. How to comprehensively resolve financing has become the most pressing issue for the new or expanding airports. It is now a rare opportunity for private capital to enter the airport construction financing sector, provided that the appropriate transaction structure is selected.

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Cao Shan is a senior partner of City Development Law Firm in Shanghai. She can be contacted on +86 21 5239 3626 or by email at sunnycao@163.com