Private involvement in China's upcoming PPPs to stay limited

The current 58% uptake doesn't reflect 'genuine' investor interest, says analyst.

Investor interest in hundreds of recently-announced public-private partnerships will continue to be limited by regulatory and revenue uncertainties surrounding infrastructure projects in sectors which have been largely untested in China's PPP market, said BMI.

The research house notes that with a significant proportion of new projects announced in the rail or social infrastructure sectors, greater financial and operational clarity from the government to increase attractiveness and reduce risk will be essential to attracting private investors.

Here's more from BMI:

The success of past PPPs may not translate into the 232 pilot projects proposed by the NDRC in 2015 and 2016, given that the scope of the new projects is significantly larger and wider than previous generations of PPPs.

Although the proposed projects include tried-and-tested energy and water assets, they also include a myriad of social infrastructure initiatives and at least USD31bn worth of railway projects.

The novelty of many of these proposed projects mean that it will be difficult to structure contracts in ways that satisfy the priorities of both the government and the private party, and increases the potential level of risk for private investors.

Social infrastructure and urban transit projects in particular are also tightly linked to ongoing social issues in China such as income inequality, healthcare and old-age care, and will thus projects will attract even greater scrutiny from the government.

Uptake so far has been stable, with 58% of the NDRC's 232 pilot projects having progressed to the "implementation" phase as of September 2016, according to the latest quarterly report from the China PPP Centre.

We note that this does not necessarily reflect genuine investor interest as a number of these projects were picked up by SOEs - in November, China Railway Construction Corporation won a design-build-finance-operate-maintain contract for a USD2.1bn railway between Beijing and its new airport under construction. This fits in with our earlier view that rail-sector PPPs will see limited interest from private investors and will continue to have heavy SOE involvement.

Indeed, clearer operational and regulatory guidelines for PPPs will likely be needed in China before interest from the actual private sector picks up.