Jan 10, 2019 (China Knowledge) – China is working on a set of national-level regulations for public-private partnership projects to identify local governments’ spending responsibility and draw the lines between on-budget financing and contingent liabilities, or the hidden part of local government debt.
The regulations are now being drafted by the Ministry of Finance, the National Development and Reform Commission and the Ministry of Justice.
These rules seek to provide local governments with a standardized supervision framework to analyze such public-private partnership projects (PPP) and identify good projects. A “positive projects” and “negative projects” list may even be introduced in the process to help local governments better screen projects.
PPPs are long-term contracts between the government and a private contractor to build public infrastructure and provide infrastructure services. Previously, such projects have been used by local governments for off-budget spending, leading to increased debt and fiscal risks for these governments.
The new regulations will further clarify the government’s investment responsibility, improve PPP management and crack down of local government’s fiscal risks.
The PPP model may be used to implement proactive fiscal policies as it can be used to fund infrastructure projects during periods of economic slow-downs. This policy change does not aim to stop the model but to strengthen regulation for long-term developments.