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China: Guidelines on Public-Private Partnerships Issued

(Dec. 23, 2014) On December 2, 2014, China’s National Development and Reform Commission (NDRC) issued the Guiding Opinions on Carrying Out Public-Private Partnerships. (Guojia Fazhan Gaige Wei Guanyu Kaizhan Zhengfu he Shehui Ziben Hezuo de Zhidao Yijian (Guiding Opinions), Fa Gai Tou Zi [2014] No. 2724 (Dec. 2, 2014), NDRC website.) Two days later, on December 4, 2014, the Ministry of Finance (MOF) rolled out 30 projects, worth a total of RMB180 billion (about US$29.32 billion), for possible private investments under the public-private partnership (PPP) program. (Press Release, MOF, Caizhengbu Gongbu Sanshige Zhengfu he Shehui Ziben Hezuo Moshi (PPP) Shifan Xiangmu [Ministry of Finance Rolls Out 30 Public-Private Partnership Projects] (Dec. 4, 2014); News Analysis: New Investment Form to Cut Cost, Fuel Growth, XINHUANET.COM (Dec. 5, 2014).)

On the same day, the MOF also announced the establishment of a PPP center to further support the implementation of the PPP model. (Press Release, MOF, Caizhengbu Chengli Zhengfu he Shehui Ziben Hezuo (PPP) Zhongxin [Public Private Partnerships (PPP) Center Founded by Ministry of Finance], MOF website (Dec. 2, 2014).) The PPP funding method has existed in China since the 1980s. (News Analysis: PPP Financing Able to Mobilize Private Capital?, XINHUANET (Nov. 27, 2014).)

These two new initiatives are intended to contribute to lowering government spending and improving public services through a third wave of PPP projects in China. (News Analysis: New Investment Form to Cut Cost, Fuel Growth, supra; PPP Moshi Zai Zhongguo de Fazhan ji Shijian [The Development of PPP in China], Jun He Law Firm website (June 11, 2014).) Shortly before the issuance of the NDRC Guiding Opinions, the Guiding Opinions of the State Council on Innovating Key Areas of Investment and Financing Mechanisms and Encouraging Social Investment were released. They emphasized the significance of PPP in mobilizing private capital. (Guowuyuan Guanyu Chuangxin Zhongdian Lingyu Tourongzi Jizhi Guli Shehui Touzi Zhidao Yijian, Guo Fa [2014] No. 60 (Nov. 16, 2014), State Council website.)

Features of the Guiding Opinions

The NDRC Guiding Opinions emphasize risk sharing and cooperation between the government and private entities under the PPP model and indicate a preference for the use of PPP in future urban pilot projects. (Guiding Opinions, arts. 2 & 3.) The Guiding Opinions include specific requirements for selecting and implementing PPP arrangements, such as a statement of the applicable scope of the project, establishment of a departmental joint review mechanism, cooperation in partner selection, standardized price management, performance review, etc. Under the Guiding Opinions, different PPP arrangements can be chosen based on local circumstances. (Id. art. 3.) Furthermore, all local-level development and reform commissions must establish a PPP project library and report monthly to the NDRC on the progress of PPP projects in their areas. (Id. art. 5.)

The General Contract Guidelines on Public-Private Partnership Projects were distributed as an appendix to the Guiding Opinions. (Zhengfu he Shehui Ziben Hezuo Xiangmu Tongyong Hetong Zhinan (2014 Nian Ban) [Contract Guidelines], NDRC website.) Based on the principles of cooperation on an equal basis, mutual benefit, legality and compliance, the Contract Guidelines outline the requirements for PPP contracts. There are, for example, provisions on rights and obligations, risk sharing, liability for breach of contract, government supervision, performance guarantees, etc. The Contract Guidelines are not mandatory and will work as a reference document for PPP project participants in the future. (Id. art. 5.)

NDRC versus MOF on PPP Arrangements

The MOF has also promulgated several notices aimed at expanding pilot projects based on the PPP model. (Guanyu Tuiguang Yunyong Zhengfu he Shehui Ziben Hezuo Moshi Youguan Wenti de Tongzhi, Cai Jin [2014] No. 76 (Sept. 23, 2014); Guanyu Zhengfu he Shehui Ziben Hezuo Shifan Xiangmu Shishi Youguan Wenti de Tongzhi, Cai Jin [2014] No. 112 (Nov. 30, 2014); Zhengfu he Shehui Ziben Hezuo Moshi Caozuo Zhinan (Shixing), Cai Jin [2014] No. 113 (Nov. 29, 2014).)

However, a conflict exists between the NDRC Guiding Opinions and the MOF notices in terms of whether a state-owned enterprise may provide capital for a PPP. According to the Contract Guidelines, a state-owned enterprise can participate in a PPP arrangement by providing capital. (General Contract Guidelines on Public Private Partnership Projects, art. 7.) However, only domestic and foreign enterprises, not state-owned enterprises, may provide private capital according to the MOF notices. (See, e.g., Cai Jin [2014] No. 113, art. 2, supra.)

The PPP model is seen as a way to fund projects related to rapid urbanization at a time when local government debt has increased substantially, reaching a total of RMB179 trillion in June 2013. (Duocebingju Huajie Difang Zhengfu Zhaiwu Kunju [Multiple Policies to Dissolve Local Government’s Financial Crisis], XINHUANET (June 17, 2014).) In the future, a new Law on Infrastructure and Public Utilities Franchises will be issued, which is intended to play an important role in further promoting PPP. (Texu Jingying Fa Qicao Jiasu Ge Bumen Xietiao Tuijin Qicao Jincheng [Under the Review of Multiple Departments, the Law on Infrastructure and Public Utilities Franchise Will Be Released Soon], XINHUANET.COM (Nov. 21, 2014).)

Prepared by Lana Xiao Yu, Law Library Intern, under the supervision of Kelly Buchanan, Chief, Foreign, Comparative, and International Law Division I.