Poster Paper: Financing Infrastructure or Improving Efficiency? the Motivation for Local Governments’ PPP Adoption in China

Saturday, November 9, 2019
Plaza Building: Concourse Level, Plaza Exhibits (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Yongheng Yang, Yingying Wang and Pu Gong, Tsinghua University

Public-Private Partnership (PPP) refers to a long-term cooperative partnership established between the public and private sector for the purposes of designing, planning, financing, constructing and managing projects, which would have been traditionally regarded as being in the sphere of competence of the public sector. To meet the demands of rapid growth in urbanization, Chinese governments, especially local governments, have implemented PPPs to raise funds for hard infrastructure. From 2014 to 2017, there were 14,079 PPP projects launched in China in sectors like transport, water and sewerage, with a total investment of US$ 2.72 trillion. Some research suggests that the initial purpose of PPP adoption in developing countries is a response to fiscal pressure and government debts (Chan, Lam, Chan et al., 2009; Ismail, 2013; Osei-Kyei, Dansoh, Ofori-Kuragu, 2014; Tan & Zhao, 2019). There is also, however, huge potential to improve the efficiency of public facility and service provision by introducing the private sector. Governments can benefit from the professional and cost-efficient operation of private enterprises in service delivery (Savas, 2000).

Developed countries witnessed a transition from concern about public debt to the pursuit of value-for-money in the provision of public goods (Edwards, Shaoul, Stafford et al., 2004; Hodge & Greve, 2007). Recently, many scholars have tried to uncover the mechanism behind the booming implementation of PPPs in China (Wang, Xiong, Wu et al., 2018). Whether the key driver of PPP adoption in China’s public goods and services from 2014 to 2017 is addressing fiscal pressure or enhancing public service efficiency, however, remains unclear. In addition, existing literature examining the financing role of PPPs in China has not distinguished between short-term fiscal pressure and long-term government debt. Most empirical works on China’s PPP adoption focus more on hard infrastructure such as transit, railways, bridges, and highways (Zhang, 2015). Soft infrastructures like education and health care receive less attention.

Using the PPP database from Ministry of Finance of China, this article examines the motivation for PPP application in 286 Chinese cities. The preliminary empirical results suggest that the motivations for Chinese local government to adopt PPPs are mixed. Local governments with short-term fiscal pressures are more likely to adopt PPPs than those with long-term public sector debt levels, and that local governments that perform less efficiently in soft public services are more likely to adopt PPPs than those that perform worse in hard infrastructure. Moreover, motivations for PPP application differ across cities with different population and economic conditions. This study contributes to our understanding of local governments’ motivation for PPP adoption in developing countries.