Developmental Public-Private Partnership tipped as new solution

China's first theoretical book for developmental PPP－an innovative method of public-private partnership－was released recently in Beijing. It aims to help boost the sustainable development of cities and contribute to people's well-being amid the wave of urbanization across China.

Developmental public-private partnership, according to the book, is a long-term partnership between the government and private companies, to provide infrastructure and city operation services. Enterprises take the responsibility of management and obvious risks. The return on investment will come from the fiscal revenue newly created by the partnership and will be linked to performance assessment and incentive compatibility.

The book was released at the second Developmental PPP Model Forum co-organized by the Society of Public Finance of China and Chinese Academy of Fiscal Sciences in late November. More than 200 experts and company executives shared their insights about theoretical research and application of PPP models.

Meng Chun, director of the China PPP research center of the University of Chinese Academy of Sciences and a researcher of the Development Research Center of the State Council, said the book provides good advice for policy-making such as budget management that can help boost high-quality development of PPP models.

Zhang Shufeng, executive president of major property operator China Fortune Land Development, or CFLD, said at the forum that the book is a theoretical summery based on successful experiences and a milestone for the promotion and application of developmental PPP.

CFLD has invested and operated in 77 regions, 30 of which are enrolled in PPP projects of the Ministry of Finance. Its five projects were titled demonstration projects of PPP by the ministry: Gu'an county of Hebei province; Lishui district of Nanjing, Jiangsu province; Nanxun district of Huzhou, Zhejiang province; Tuanfeng county of Hubei province and Xinzheng city of Henan province.

CFLD's developmental PPP model has operated in those regions and achieved spectacular achievements. In Huzhou's Nanxun district, Zhejiang province, CFLD helped Shenzhen Efonlong Optronics Display to initiate its ultra-thin glass substrate deep processing project, with an investment of more than 10 billion yuan ($142 million). The aim is to develop advanced industries and promote industrial reformation and upgrading in Nanxun, the company said.

Lishui district of Nanjing is another region codeveloped by the local government and CFLD. CFLD helped Sunwoda Electric Vehicle Battery build its large-scale power battery base in the district this year, which helped boost the local new energy vehicles industry. The project brought an investment of 12 billion yuan. In Lishui, CFLD is working on constructing the NEV industry and related battery, electrical machinery, electronic control and auto parts industries.

Gu'an county of Hebei province was another major developmental PPP project of CFLD, which kicked off in 2002. The partnership has helped promote sustainable and high-quality development of the local economy. In May 2018, the Gu'an project was named one of 60 typical cases for people-oriented sustainable development worldwide by the United Nations.

Wang Hai, Party secretary of Gu'an county, said at a forum in Zhengzhou, Henan province, in October that its partnership with private enterprises under the developmental PPP model since 2002 has contributed to the leapfrogging economic and social development of the county.

Wang added Gu'an has developed from a poor county that relied on agriculture into an economically strong county in Hebei province.

"In the new round of high-quality development of regional economy, Gu'an county will further promote and apply the developmental PPP model," he said.

Chinese county economies face a lack of capital, talent, technologies and industries. In those cases, CFLD provides planning and design consultancy, land resources management, infrastructural construction, public facilities construction, industrial development and city operation services, to build specific competitiveness of each region and help it attract high-level industries, techniques and talent, to boost high-quality development of regions, according to Zhang.

Zhang said CFLD has formed a mechanism featuring self-support, incentive compatibility and incremental reward. Under this mechanism, the government does not need to spend money, provide guarantees and financing, or undertake any debts.

All investments in regions involved in developmental PPP model come from private enterprises that demonstrate high-quality development performance. This guarantees that the government can realize the ultimate goal of high-quality development of the regions, he added.

In other words, in such a model, the government authorizes private enterprise to invest in and develop regional economy and assess its performance from the aspects of fiscal revenue, GDP, people's livelihood, employment and ecology. It would only have to pay for the public-private partnership services if private enterprise meets the requirement of each category. The payment would come from the new fiscal revenue created from the partnership. If private enterprise fails to bring in new fiscal revenue, the government doesn't have to pay for it, according to CFLD.

The model solves the problem of insufficient financial investment in underdeveloped regions, spares the government risk and realizes win-win results, according to the company.

Yang Yingming, executive director for China at the World Bank Group, said that CFLD's developmental PPP model has changed the traditional investment model of local governments in China in civic construction. It also gives inspiration to the World Bank to provide financial support for China's urbanization and infrastructure construction in developing regions.