Big infra demand to boost PPP

Significant demand nationwide for urban development and infrastructure projects, funded through the public-private partnership or PPP route, will likely create a trillion yuan ($147 billion) market in the next couple of years, which may grow into a 10-trillion yuan market in the next decade, industry experts said.

Some 11,260 PPP projects were registered by the end of 2016; and 1,351 of them involved a combined investment of 2.2 trillion yuan. Total investments in all PPP projects is expected to exceed 10 trillion yuan, according to the China Public-Private Partnerships Center in the Ministry of Finance.

"It is estimated that in 2017, this number (combined value of contracts) will reach 3 trillion yuan, and 4 trillion yuan in 2018," said a research note from Essences Securities. "PPP policies will be more specific and pragmatic. As the first batch of projects will begin to yield, and investors exit with gains, more investors are likely to be attracted to join the market," it added. The report said, private capital would choose projects with stable and steady yields, and their investments would focus on efficiency instead of volume. In this way, we believe that PPP projects will gradually replace some projects purely funded by local government funding vehicles, which in the long-run will benefit all parties involved.

In March, regulators approved several PPP infrastructure projects seeking to raise funds through securitization－one more move to encourage more private capital to enter the market.

Zhao Zaozao, a researcher on financing strategy and an analyst on PPP funding models with the China Academy of Social Sciences, said that as regions across China vary greatly in terms of economic development stages, natural resources and geographical features and demand for resources is locality-specific.

For example, in the western part of the country, more projects focus on infrastructure such as traffic networks, land rehabilitation and water conservancy, while in eastern parts, demand is for public facilities such as landscaping in urban areas, according to Zhao. Companies listed in Shanghai and Shenzhen are likely to benefit from the fast growth of PPP projects, particularly top players in related sectors that have already participated in PPP projects as contractors or investors.

"Urban development requires a wide range of projects besides traffic networks. Urban renewal projects involve such a refurbishment of old areas. This includes improving landscapes and public spaces such as gardens, parks and wetlands," Zhongtai Securities said in a research note.