Financing China’s unprecedented infrastructure boom: the evolution of capital structure from 1978 to 2015

ABSTRACT

The authors examine the sources of the funds that have financed China’s infrastructure development since 1978. They define the five periods in which this development has taken place in terms of predominant financing: fiscal funds, build-operate-transfer (BOT), treasury bonds, the land financing, and local bonds. The system is characterized by a heavy reliance on debt financing and one-off revenues. These approaches have raised widespread concerns about fiscal sustainability in China. The authors explain why a shift towards the more conventional approach of fiscal funds is necessary.

IMPACT

China’s infrastructure development since 1978 has been characterized by a heavy reliance on debt financing and one-off revenues. The model raises the concern about the country’s long-term fiscal sustainability. China should shift towards the more conventional approach of using fiscal funds to support infrastructure.

KEYWORDS:

• Capital structure
• debt financing
• infrastructure finance
• public budgeting
• public–private partnership (PPP)

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This research was funded by the Ministry of Education of the People's Republic of China (grant no.19YJC630072).