Government-led infrastructure development’s heavy dependence on a single source of financing has increased government debt significantly. The model is not sustainable. For a long time, China’s infrastructure financing mainly came from government lending and land-transfer revenues. As revenues have diminished, solvency pressures and risks for local governments have risen to high levels. To address the issue, the central government has made it an economic priority to control and reduce local-government debt risk this year by reducing the amount of credit banks provide to local governments and by increasing the level of audit and transparency of local-government accounts.
In light of these circumstances, a better infrastructure-development model would shift away from dependence on government to greater reliance on market finance. The central government is advocating the idea of diversified ownership by encouraging social investment in infrastructure operations through franchises, equity investment, and public–private partnerships (PPP).
China’s Ministry of Finance is working to promote the PPP model in infrastructure projects by identifying the respective rights, obligations, risks, and revenues of both public- and private-sector partners. In this way, the government hopes to build complementary and mutually beneficial partnerships with the private sector on public projects.