China issues new rules to bring private capital into investment plan

China issued guidelines on Thursday to encourage more private sector capital for public-private partnership (PPP) projects that channel funds into state infrastructure projects. The government will step up financing support for PPP projects involving private capital by measures such as investment subsidies, the National Development and Reform Commission said on its website.
China is keen to attract private capital to government-led projects to alleviate a debt burden for local authorities, and has promised policies to support PPPs, though concern about fair access and low returns have deterred private sector investors. State-owned enterprises, which technically qualify as the "private" component of PPP projects, have crowded out true private sector participation, which complicates the government's effort to reduce the debt burden on the state sector.
Beijing has also repeatedly said it would take measures to boost private investment across the economy - stuck in single-digit growth rates for more than a year - which has required the government to step in with stronger fiscal support. The guidelines state that private investors' opinions must be considered when creating PPP policies, and that those overseeing projects should allow private investors to avoid being responsible for complex early-stage work.
"Continually open the infrastructure sector. Apart from industries restricted by law, fully open to private capital, and do not restrict private capital participation in PPP projects in any form or by any means", the NDRC directive said. More channels for project financing should be developed, including securitisation and bonds, while government-backed funds should invest in projects that include private capital, the NDRC said.
Governments can also consider full or partial equity transfers of PPP projects to private firms in order to entice more private participation, the guidelines said. The value of China's 14,220 existing PPP projects totalled 17.8 trillion yuan ($2.69 trillion) by end-September, according to a national database managed by the finance ministry.
While pledging to make it more attractive for private firms to invest in PPP projects, the government has also called out local governments for using the programme to raise debt through "disguised channels". China will prevent illegal financing via PPP projects and fend off risks of hidden debt for local governments, the guidelines said.