China Focus: 1.53 bln USD fund for infrastructure in region around Chinese capital

Northern Chinese province Hebei, which surrounds the capital Beijing and costal city Tianjin, has initiated a 10 billion yuan (1.53 billion U.S. dollars) fund to support infrastructure construction in the region, the provincial fiscal authorities said on Wednesday.

Hebei province will commit 1 billion yuan in fiscal funds while the remaining 9 billion will come from banks, insurance companies, trusts and other capital contributors, likely from state-owned or private firms.

The fund was established to support infrastructure projects in the Beijing-Tianjin-Hebei region in northern China through public-private-partnership (PPP).

Authorities began promoting the PPP model since 2015 as a solution to funding shortfalls in infrastructure construction after local governments were banned from borrowing through its financing vehicles, a risky practice that has seen local governments spending short-term funds raised at elevated costs on long-term public projects with mostly low or negligible returns.

The PPP model encourages participation in infrastructure projects from investors outside the government, thus shifting some of the spending burdens away from local governments.

However, the PPP campaign has so far been met with a largely tepid response from the private sector. Only 31.5 percent of the 1,043 PPP projects the central government promoted in May 2015 got their contracts signed as of the end of November, according to a research note from Nomura

Complexity of deal structure, lack of confidence in partnership with local governments and the gap between the high return expected by private sector investors and the return that can be realistically offered by the projects are among reasons behind the limited success of PPP so far in China, analysts from Nomura said.

Instead of working on their own, Beijing, Tianjin and Hebei have sought increasing coordination in infrastructure development across their jurisdictions amid a mandate to close gaps in economic development between Beijing and its neighbors.

Cooperation among the three has already began in the fight against environment pollution and improving transportation links in the region.

The three jurisdictions chipped in 10 billion yuan in late 2014 for a joint venture to invest in projects such as building an inter-city railway network in the region. Endi