BEIJING — Public-private partnerships (PPPs) will be the main financing model Chinese local governments use for infrastructure investments up to 2020, with State-owned enterprises (SOEs) to play the leading role, global ratings agency Fitch said on Feb 20.
The PPP model will also help Chinese construction companies to expand their order books as well, according to a recent Fitch report.
However, the PPP model is in its early stages of development and SOEs have emerged as the main partners of Chinese local governments, rather than private investors, it noted.
“This is mainly because returns on most PPP projects, typically 5 percent to 8 percent, are not appealing to private investors, but are sufficient for SOEs, which enjoy lower financing costs,” Fitch said.
In addition, local governments and Chinese banks tend to view SOEs as more stable, long-term partners, it added.
“The use of the PPP model could help to smooth out local government budgets as projects using the model tend to have much longer life cycles than those using the traditional build-transfer model,” it said.
China’s PPPs grew steadily in 2016 as project operators’ experience and efficiency improved, with a total of 11,260 PPP projects being registered by December 2016, according to figures from the China Public Private Partnership Center under the Ministry of Finance.