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Abstract
This paper examines the rise of public-private partnerships in the longitudinal context of China’s infrastructure finance system since 1978. The system has been characterized by the use of alternative infrastructure finance, including land transfer fees, various types of indirect local government borrowing, and, more recently, the rise of public-private partnerships. While contributing significantly to the unprecedented infrastructure boom, alternative finance sources also raised concerns of fiscal sustainability in China. PPP cannot be an effective way to reduce local governments’ high reliance on debt financing. It is time for the country to develop a more balanced capital structure with ongoing funding support to keep up its long-term infrastructure development.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
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3 Xinhua Net, “Scale of China’s Subway Expands Quickly.”
4 McKinsey Global Institute. “Bridging Global infrastructure Gaps.”
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7 Bo et al., “New development,” 225–230.
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10 Wu, “Urban Infrastructure Financing and Economic Performance in China.”
11 Wang et al., “Fiscal Reform and Public Education Spending,” 334–356.
12 Zhao and Cao, “Funding China's Urban Infrastructure.”
13 Wang and Hou, “Pay-as-you-go Financing and Capital Outlay Volatility,” 90–107.
14 Frank and Goyal, “Testing the Pecking Order Theory of Capital Structure,” 217–248.
15 See note 10 above.
16 Wildau, “China Looks to Municipal Bonds to Clean up Local-Government Debt.”
17 Thieriot and Dominguez, “Public-Private Partnerships in China.”
18 Chan, “Infrastructure Services and Financing in Chinese Cities,” 503–528.
19 Zhao, “Fiscal Decentralization and Provincial-level Fiscal Disparities,” S67–S74.
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21 Chang, “Infrastructure Services and Financing in Chinese Cities,” 503–528.
22 Shen et al., “Political Risks and Sovereign Risks in Chinese BOT/PPP Projects,” 50–53.
23 See note 10 above.
24 Su and Zhao, “China: Fiscal Framework and Urban Infrastructure Finance,” 41.
25 Wang et al., “Fiscal Reform and Public Education Spending,” 334–356.
26 Zhao, “Funding Urban Infrastructure.”
27 Zheng, “The Real Risk of China’s Sub-National Debt,” 52–76.
28 Jensen and Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” 305–360; Myers and Majluf, “Corporate Financing and Investment Decisions When Firms Have Information that Investors do not have,” 187–221; Hart, “Financial Contracting.”
29 Myers and Majluf, “Corporate Financing and Investment Decisions When Firms Have Information that Investors do not have,” 187–221.
30 Qian and Roland, “The Soft Budget Constraint in China,” 207–223.
31 Augenblick and Custer, The Build, Operate, and Transfer (“BOT”).
32 Wang and Zhao, “Motivations, Obstacles, and Resources,” 679–704.
33 Huang and Liu, “Learn from History.”
34 Wang, “Do China’s BOT Projects Experience Failure?”
35 PPP projects data comes from National PPP Database by Ministry of Finance.
36 Ministry of Finance, “Notice on Substituting Subsidies with Rewards for Public-Private Partnership projects.”
37 Renmin Net, “Ministry of Finance.”
38 Southern Weekly, “How have State-Owned Companies become the Main Participators in PPP in China”?
39 Zhao, “Making China’s Urban Transportation Boom Sustainable.”
40 Zhang and Hou, “A Model for the Ability-to-Pay Index of China’s Real Property Tax, Tax Burden Distribution and Redistributive Effects.”
41 Zheng, “The Real Risk of China’s Sub-National Debt,” 52–76.
Additional information
Notes on contributors
Zhirong Jerry Zhao
Zhirong Jerry Zhao is an Association Professor at the Hubert H. Humphrey School of Public Affairs, University of Minnesota. He is also a research fellow in China Institute for Urban Governance, Shanghai Jiaotong University. His research area is public finance and budgeting.
Guocan Su
Guocan Su is a Doctoral Candidate of School of Economics, Xiamen University. His research interests are tax policy, indirect tax incidence, infrastructure financing and public-private partnerships.
Dan Li
Dan Li is a Doctoral Candidate of School of Government, Sun Yat-sen University. Her research interests are public-private partnerships and government-enterprise relationships.