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China – Expect More Public-Private Partnerships As New Private Investment Rules Come Into Force, Says Expert.

2 June, 2015

 

 
New private investment rules coming into force in China today will open up previously off-limits public projects to private franchises, while providing a greater level of investor protection, an expert has said.
 

The new rules form part of China’s efforts to open up more of its predominantly state-run public sector to private investment and stimulate economic growth. Infrastructure law expert Richard Laudy of Pinsent Masons said that the new regime would create opportunities for both domestic and foreign investors in energy, transportation, water and environmental protection and urban utility projects.

 

“These rules are another sign of China’s efforts to cut red tape, encourage public-private partnerships (PPPs) and reduce foreign investment restrictions in the infrastructure sector,” he said. “President Xi first announced his plans to attract more private investment into infrastructure and public utility projects back in 2013, but since then the uptake has been slow. Some private investors have been cautious about the level of risk, as well as how much control they will have in the project.”

 

“After 1 June, investors will have greater financial security and better credit support from local banks and institutions in funding energy, transport and real estate projects. These well-structured projects can lead to stable, long-term revenues that are very attractive to private investors. However, this success will rely on risk-sharing and cooperation between the government and the private sector, as well as a transparent regulatory framework,” he said.

 

PPP refers to a type of long-term cooperation between governments and private companies on the funding, building and operation of public infrastructure. PPP projects are usually designed, built and operated by the private sector company for a prescribed period, under the supervision of the public sector partner.

 

China’s new Regulation on Infrastructure and Public Utility Concessions replaces the existing concession regulation, which only applied to urban utilities, from today. It comes as China’s National Development and Reform Commission (NDRC) announced details of 1,043 proposed PPP projects, requiring an estimated 1.97 trillion yuan (USD 322bn) in private investment. Economic growth in China fell to 7% in the first quarter of this year, its slowest pace in six years, after fixed asset investment growth fell to its lowest level since 2000.

 

Laudy said that Chinese rail projects were likely to prove particularly attractive to private investors, following President Xi’s announcement to invest more than 800bn yuan into developing China’s railway network and building over 8,000km of new lines in 2015. One of the major PPP projects in the NDRC’s current pipeline is the Beijing Subway Line 16, a 29-station north-south route from Beianhe to Wanping, which is expected to be fully operational after 2017, he said.

 

Beijing-based infrastructure law expert Helena Chen of Pinsent Masons said that both domestic and foreign private sector companies would be able to take advantage of the new investment opportunities. Article 3 of the new law expressly stipulates that an investor can be a domestic or a foreign company, she said.

 

“We believe that the huge PPP market in China will attract domestic companies as well as foreign companies from the west, such as the UK,” he said. “However, the fact that the project will be a concession will not exempt it from any of the regulations governing foreign investment into China as confirmed by Xu Kunlin, head of investment in NDRC.”

 

In a statement on the NDRC website, Xu Kunlin said that foreign investors would be welcomed “as long as they belong to categories that are encouraged or permitted in the Catalog for the Guidance of Foreign Investment”.

 

Pinsent Masons

 

For further information, please contact:

 

Richard Laudy, Partner, Pinsent Masons

richard.laudy@pinsentmasons.com

 

Helena Chen, Partner, Pinsent Masons

helena.chen@pinsentmasons.com

 

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