Innovative Financing: An Empirical Study on Public–Private Partnership Securitisation in China

Abstract

Many localities in China are faced with an outdated, segmented infrastructure system and a shrinking budget. However, the state-led promotion of Public-Private Partnerships (PPPs) in China is providing an innovative solution. This paper looks at financing innovations in China such as industrial funds and assetbacked securitisation for PPP projects. Particularly, this paper empirically studies the characteristics of project revenue bonds and PPP asset-backed securities (PPP-ABS) in China. The study finds that the majority of social investors remain state-owned enterprises (SOEs) and returns on whole business securitisation (WBS) of projects could vary with the volume issued and the credit of the company. Securitisation not only solves the problem of limited source of financing, but also improves the efficiency of management. While securitisation of PPP projects can succeed in tapping social capital to invest infrastructures, the banking system should handle with caution the credit risk and default risk caused by rising leverage of PPP special purpose vehicles (SPVs).

From Loan-Financed to Privatised Infrastructure? Tracing China's Turn Towards Public–Private Partnerships in Africa

“…PPPs have generally been considered by the Chinese central government as a solution for alleviating financial pressure and mitigating debt risks for sub-national governments, allowing them to proceed with public works and infrastructure development despite tight public budgets (Wang et al, 2019). Yet, contrary to political intent, the run of Chinese local and provincial governments on PPPs has exacerbated chronic over-spending (Yu et al, 2018; Liang and Hu, 2018). A 2018 report released by the MOF on the financial capacity of PPPs (PPP项目财政承受能力汇总分析报告, PPP xiangmu caizheng chengshou nengli huizong fenxi baogao ) found that the 6400 PPPs covered by the report incurred on-budget annual expenditures of around CNY 9.9 trillion between 2015 and 2045 – or CNY 319.4 billion per annum ( China Banking News , 2018).…”

“…Another aspect that casts into doubt whether PPPs are a long-term solution for China's (sub-national) government debts is the fact that they often only shift debt pressure from one part of the state to another. Chinese authorities have confirmed that a great majority of “private” investments in PPPs are still emanating from SOEs (Yu et al, 2018: 3). As noted above, the “public–private” label in Chinese PPPs often takes on a distinct meaning.…”

Alleviation effect of supply chain finance on financing constraints of high‐tech small‐ and medium‐sized enterprises

“…Kaya and Masetti (2019) show that the increase of securitization issuance reduces the probability of SMEs facing credit constraints and the costs of bank financing costs of unconstrained firms. Yu et al (2018) suggest that securitization of PPP projects can not only solve the problem of limited source of financing but also improve the efficiency of management. The research results of Masiak et al (2019) indicate that micro firms differ in their financing patterns from larger SMEs, and they are more likely to use internal financing instruments, less likely to use state subsidies, trade credit, or asset-based financing instruments.…”

Asset-Backed Securitization of PPP Projects: The Case of China

“…ABS can facilitate the private sector's participation in PPP projects by expanding financing channels and providing improved exit mechanisms. PPP-ABS can expand financing channels by attracting long-term capital in the market (Yu et al, 2018). Also, by trading PPP-ABS products in the capital market, private investors can exit PPP projects and avoid substantial transaction costs.…”