Abstract 

On the afternoon of September 20, 2018, the fourth session of GLGA Lecture Hall was successfully held at the Innovation and Development Center, Green Legal Global Alliance. Today, we have our keynote speakers here, Zhou Kaibo, head of the PPP Project Promotion Office of the International Cooperation Center, National Development and Reform Commission, and He Liping, expert member of the Chinese Economists 50 Forum, and director of the Institute of International Finance, BNU Business School. The Secretariat of the Green Legal Global Alliance will summarize and release exclusive opinions by the head Zhou Kaibo on the development process and future development prospect of PPP in China, and its re-interpretation under the current policy situation. 

Basis of rethinking 

Four years ago, we didn't have No.27, No.92, No.192, No.54, and No.74 documents issued, and we knew nothing about them in the context of initial conditions. However, with four years of rapid development, China has achieved the largest economic volume all over the world. What does it mean? Let's talk about medical institutions. I used to conduct an investigation in the US. The medical institutions there think that the Chinese doctors have excellent medical skills since they deal with countless cases every day. In China, there are a particularly large number of patients to be studied and treated. We have too many subjects to be served. 

What we should do now is to encourage the private real economy to take an active part in PPP. However, it is not enough only with enthusiasm. For private economy, as what Mr. He Liping talked about, compared the private real economy with state-owned enterprises, the former has no advantage over financial, project, and other unequal resources. Matching the financial system with the private economy has not been that perfect, at least in terms of PPP. Generally, the cooperation term of PPP is more than 10, 20, or even 30 years. Is there a private economy that can receive preferential support from financial institutions in 10 or even 20 years? Actually, 7.5% return rate of PPP is very high. The return rate is 5.5% in Changsha and other areas. In general, the financing cost of private economy is higher than the above figure, matching with the financial institution. Can you get a loan with a very low interest rate from China Development Bank or Agricultural Development Bank? 

After June 2018, our management is divided into four major sectors, which is the basis for restarting. Four years ago, we didn't have such a large inventory, and there were no project resources. I remembered that at that time, the National Development and Reform Commission had several meetings for feasibility study and planning of the "13th Five-Year Plan" project. Now, we have RMB12 trillion regardless of new project. However, it remains unknown for implementation. 

It can be seen that we can set out from the municipal administration, transportation, ecological environment and regional development for lawyer and other related consulting services. There are some specific data of these four sectors. Today, I will not talk about it in details. In the field of PPP operation, transportation among the investments in municipal administration counts more.  If large-scale legal and consulting services are involved, the above major sectors must be followed. 

What is it based upon? The genuine and fake PPP projects coexist. For example, some do not belong to the public service. PPP is originally designed for urban or rural areas, i.e., urban and rural infrastructure. 

What is PPP? It is not a real PPP if there is no actual operation. After three years of construction, there are many problems in the next ten or fifteen years regardless of business practice. For example, a central enterprise relies highly on SPV for construction engineering. Afterwards, the assets are sold due to poor operation. Therefore, many state-owned enterprises have been transferred into third-party operating companies, thus leading to legal issues. When giving a report, have you made legal issues upon transfer of state-owned enterprises and method of transfer clear? I remembered that the State-owned Assets Supervision and Administration Commission (SASAC) disagreed. Is there any loss of state-owned assets as a major shareholder? The local government may not agree with the transfer since it will take into account of external operations after the SPV runs away. With numerous problems, there is one important factor of emptying inventory over the previous year, i.e., the actual operation. 

In addition, the rights and obligations are not balanced. For risk sharing, do the state-owned enterprise, private economy, and local government equally bear the obligation? In 2016, I spent much time on it with a lawyer team. I didn't know president Liu at that time. The lawyer team must guarantee the legitimacy of the entire procedure from beginning to end, so as to avoid mistakes. Generally, the consulting agencies only work on the case as required, and seldom take the compliance of legal procedures into consideration. There must be a legal institution in the future ecosystem, with some lawyer intervened from the very beginning. For financial appraisal, the lawyer's plan should be incorporated into the implementation plan. Illegal procedures or invalid and non-compliant documents are also major causes of emptying inventory. 

The cooperation term of PPP cannot be too short or too long. Generally, it is not a PPP project if the cooperation term is less than 5 years or more than 30 years.  A company who can operate a project for more than 30 years must make a decision subjectively or juggler with others. This is the case for both the private economy and state-owned economy. 

This is disguised financing, another topic taught in teaching material. I remembered that an EMBA student in Wuhan University and deputy mayor said that penetrating considerations of the head ZHOU were not applicable. The first two respects can be penetrated. However, the disguised financing cannot be guaranteed for further penetrating consideration. I dare not answer this question, I wonder if you can answer. How can you collect your capital funds? Only several companies or truly-engaged PPP enterprises have sufficient capital funds. The investment has seen a decrease of capital funds to 20% from 35%. The capital funds cannot be borrowed or loaned. Therefore, the owned capital must be in place. Today, there are a lot of views on the owned capital. How can it be collected? Which level can it be penetrated under the domestic law circle? It is currently believed that individually saved money serves as owned capital funds. 

Non-standard operation is also one of the reasons of emptying inventory. Nowadays, the genuine and fake PPP projects coexist. The mismatch of financial systems in reality is the main reason for the existence of fake PPP. This is my personal understanding, independent of any unit opinion. Every city has its own unique resources. I come from Changsha. A few days ago, I went Changsha twice to collect some project materials, and discuss how to develop regional cooperation of PPP. Upon investigation, it has great potential for regional development, which I didn't know before. In fact, such resource possession and decision-making power are unfair. Non-transparency is a big incentive for all kinds of real economy to get involved in fake PPP. Good resources, including land development, may have excellent return and actual income. However, the general resources are also targeted. 

In addition, we also have the mismatched financial system. Nowadays, off-balance sheet financing becomes popular, including changes in the interest rate. I heard that real estate developers must have 20% of financing for advancement. 

With respect to the formulation and further advancement of the PPP cooperative regulations, I had a discussion with the Marketing Department yesterday. The specific implementation regulations of the PPP will be made public soon. We sought advice in July last year, and we'll do the same thing this year. We may go to northern and southern regions for consulting. Four years ago, we didn't have relatively matured legal norms and frameworks, but now, we do have, which is a basic for restarting. 

Rethinking of PPP 

Under four years of development, no progress was made on PPP in the first half of the year basically, and I am wondering why. I think it is about "three-immortality" in ancient China, moral codes, merits and virtues, and comments. I also talked it with some leaders who totally agreed with me. Why? All urban personnel and governments of PPP should have the basic thoughts of "three-immortality". What are moral codes? Honesty and credibility should always be consistent. 

All-round honesty and credibility can better achieve "three-immortality". It is the same with PPP. All participants should put honesty and credibility on the top of agenda, and live up to "three-immortality", thus achieving the core value of PPP in practice. Literally, the core value serves for the infrastructure and public service areas. So who are the final service objects? Of course, all of us, what are we lacking here? Is there anyone else? What about villagers and ordinary people? There may be a price adjustment mechanism about water, and numerous meetings are held. However, we do not need to seek advice regarding many infrastructures, including tourist facilities. The PPP leaders, the government-related entrustment platform, and social capital parties have the final say. However, I think it is best to seek advice for the sake of better service. 

We aim to create a healthy PPP ecosystem. The year of 2018 will mark a more standardized and orderly development stage. The healthy PPP ecosystem, on the basis of information system, can help create a normative PPP development atmosphere, establish a true PPP alliance strategy, and get rid of the information asymmetry, so as to help all participants achieve direct financing. I mentioned the ecosystem here, which is composed of about seven or eight organizations in different industries. For example, the lawyer industry definitely serves as an integral part. I hope intervention can be performed from the very beginning. 

We should be well-prepared for staying true to the mission, and discarding what is false and keeping what is genuine. We have experienced he fluctuation or continuously expanded scale of PPP, and have a better understanding on PPP drive by the central government or local government bond. The State Council had a specially-assigned team to make an investigation on the local government bond last year and this year. However, I have a question here. Does compliant and reasonable PPP is a local government bond? I think we must figure it out. Otherwise, the local government is afraid to run the risk. Assume all conditions are met, and the qualification of local government is satisfied, does it a local government bond if I make a touch? 

Staying true to the mission, and discarding what is false and keeping what is genuine are an irresistible trend, and it will further drive China's PPP. We should have a thorough understanding on the cooperation mode of each PPP social group and economic interest organization. What does it mean? If you have a vague view about interest appeal or attitude towards all participants, the policies formulated may be inapplicable anymore. There are three main payment modes of PPP, i.e., government payment, viability gap funding, and user charges. 

From the actual operation, many people and enterprises prefer government payment. It may sound a little strange. Many governments, with an income of only RMB300 million and some transfer payments, are really lack of money in impoverished counties. Most enterprises prefer government payment. However, some enterprises hold a different opinion that the government breaks its words, and they no longer believe in the local government. There is a poor awareness of user charges, which is a concrete issue in practice. User charges may still be unalterable, which should be guided by relevant policy departments. 

Let's move to the value for money, demonstration of financial capacity, and preliminary implementation plan. We just talked about the data should be real, and local balance sheet and data report clear. However, there is another question. The authenticity cannot be verified. So I think a lawyer can be intervened from the very beginning. The correct data are needed for making a legal document. If there is something wrong, the government should bear full responsibility, rather than the planner. 

There are clear requirements for the collection, arrangement and utilization of big data sources. However, they are not unified. This is a big issue which we need to rethink. A mere formality should be fully avoided. I remembered that trillions of yuan were wiped out during explosive growth even though becoming a mere formality is an irresistible trend, very simple with just a piece of paper. 

Everyone is very concerned about the future direction of PPP. Except for the major infrastructure project, some areas started to improve weak links from the beginning of July. It is a great strategy to introduce PPP into rural areas for revitalization. What is it? It is the development and construction of characteristic parks, rather than characteristic towns since the development and construction of industrial parks and characteristic towns centering on industrial development will be introduced and constructed in the third batch of projects. 

The construction of the Guangdong-Hong Kong-Macao Greater Bay Area can bring in large market values. In the days ahead, PPP will be introduced centering on the "Yangtze River Economic Belt", the "Coordinated Development of Beijing, Tianjin and Hebei", and the "Belt and Road". 

PPP is related to the practice and operation. There are many practical problems and implementing areas. I hope that I can share more about the great achievement made from PPP projects in the future with all present lawyers and friends. That's all for today. Thank you!