China’s ruling Communist Party is urging businesses in the country to invest in infrastructure projects in order to boost domestic demand and revive the struggling economy. However, analysts believe that this plan may be an attempt to take over private sector assets as governments across the country face financial difficulties.
According to an official statement, the government will grant “franchises” for investing in infrastructure projects on a “user pays” or “build-operate-transfer” basis. The government aims to involve private companies deeply in efforts to stimulate domestic demand through public-private partnerships and joint ventures with state-owned companies.
The plan seeks to allocate stakes based on the market sensitivity of industries or projects. This initiative is intended to bring local government finances “into the sunshine” and address new, hidden debts carried by local governments. The government also plans to expand on its existing “public-private partnership” policy.
As local governments have been hit by the impact of COVID-19 restrictions and a decline in property-related income, their debt burdens have increased. This has led to borrowing more to pay off existing debts and tapping into medical insurance funds, resulting in cuts to medical benefits and protests in major cities.
However, some experts believe that this plan will benefit the state-owned sector at the expense of the private sector. They see it as an asset-grab by the public sector and a way for the government to gain control of private assets.
The guidelines indicate that the new “franchises” will focus on “user pays” projects with clear charging channels and income streams, and must not involve new local government borrowing. Private companies could wind up with stakes as low as 35% in projects deemed important for the national economy and people’s livelihood, but there are penalties for companies that do not meet the government’s standards.