China to replace subsidy with reward to underpin PPP projects

BEIJING - To support public-private partnership (PPP) projects China will provide rewards instead of subsidies in a pilot program that will start next year, a Ministry of Finance (MOF) notice said Thursday.

The three-year trial of the reward program will see the central government phasing out subsidy measures, according to the notice.

The private partners in the PPP demonstration projects will be offered three-tier rewards based on the investment scale.

For a PPP project with investment of under 300 million yuan ($46.3 million) the central government will provide 3 million yuan in reward; for a project between 300 million yuan and 1 billion yuan, the reward will be 5 million yuan; and for a project above 1 billion, the reward is 8 million yuan.

The ministry said it also encourage uncompleted locally-funded public service projects to transform into PPP model projects.

For those successfully transformed projects, the central government will also provide rewards. The reward scale will be 2 percent of the debt reduction the transformation brought to the local government.

In China, 70 percent of local government debt takes the form of investment with expected returns, Premier Li Keqiang said in September this year when he met with business leaders ahead of the Summer Davos forum.

China's top legislature in August imposed a ceiling of 16 trillion yuan for local government debt in 2015, which consists of two parts, 15.4 trillion yuan of debt balance owned by local governments by the end of 2014, and 600 billion yuan as the maximum size of debt local governments are allowed to run up in 2015.

There were 1,043 potential PPP projects valued at a total of 2 trillion yuan in China, as announced by the National Development and Reform Commission in May this year.

In September, the MOF initiated a fund with 180 billion yuan to support PPP projects.