Regulating Local Government Financing Vehicles and Public-Private Partnerships in China

IMF Working Papers, September 16, 2016

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Regulating Local Government Financing Vehicles and Public-Private Partnerships in China

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Bibliographic details

• Authors: Hui Jin, Isabel Rial
• Published: September 16, 2016
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475536768.001

Summary and central argument

• The paper argues there is much room for China to strengthen its regulatory framework for public-private partnerships (PPPs).
• Infrastructure projects carried out through local government financing vehicles (LGFVs) were largely unregulated PPPs, and significant fiscal risks have already manifested themselves.
• PPPs can potentially provide efficiency gains, but can also be used by governments to circumvent budgetary borrowing constraints.
• Effective PPP regulation is key to delivering PPPs’ benefits while containing their potential fiscal risks.
• The authorities have taken concrete steps to establish a sound regulatory framework and foster a new generation of PPPs, but a few issues remain to be resolved.
• Based on international best practice, the authors propose a four-pillar regulatory framework for China, which could be implemented gradually in three stages.

Major findings and fiscal risks

• LGFV-led infrastructure projects functioned as largely unregulated PPPs.
• Significant fiscal risks from these arrangements have already manifested.
• Risk identified: governments using PPPs to circumvent budgetary borrowing constraints, creating contingent liabilities and fiscal exposure.

Regulatory assessment and issues to resolve

• Current steps by Chinese authorities represent progress toward a sound PPP regulatory framework.
• Remaining unresolved issues must be addressed for the framework to be effective (specific unresolved issues are noted in the paper).

Proposed regulatory framework and implementation

• Proposal: a four-pillar regulatory framework for China (framework described in detail in the paper).
• Implementation approach: gradual rollout in three stages.

Subject coverage and keywords

• Subjects: Expenditure, Fiscal risks, Infrastructure, National accounts, PPP legislation, Public debt, Public financial management (PFM), Public investment and public-private partnerships (PPP)
• Keywords: Africa, Currency Substitution, fiscal risk, Fiscal risks, government capacity, Infrastructure, investment project, investment unit, PPP contract guideline, PPP framework law, PPP legislation, PPP project, PPP regulation, PPP unit, Public investment and public-private partnerships (PPP), subnational government, WP

Content in this bundle

• Regulating Local Government Financing Vehicles and Public-Private Partnerships in China
  • Regulating Local Government Financing Vehicles and Public-Private Partnerships in China (Markdown version)
  • Regulating Local Government Financing Vehicles and Public-Private Partnerships in China (PDF)