The central Chinese government continues to tighten control on the real estate market, which has weakened the contribution made by property investments to the economy. To mitigate this, China is encouraging the development of infrastructure instead of property as the source of economic growth, and promoting the Public-Private-Partnership (PPP) model. We expect the PPP to be a major policy pushed by the central government next year for stimulating economic growth. The acceleration of China’s infrastructure projects will provide opportunities to the businesses in the benefited sectors.
The Public-Private-Partnership (PPP) model refers to a franchise agreement between the government and private companies in social, infrastructure and construction projects. Recently the Chinese government has put great efforts in promoting the PPP model and to accelerate on the related projects.
According to the statistics from CPPPC, as of the end of September 2016, the number of PPP projects has amounted to 10,500, with a total investment of up to 12.46 trillion yuan, a growth of 50% compared to 2016. 946 of the PPP projects have entered the implementation phase, with a total investment of 1.56 trillion yuan, accounting for 12.5% of the potential investment in current PPP projects. The number of approved projects has also increased. In October 2016, the Ministry of Finance announced the third batch of 516 PPP demonstration projects, far exceeding the number of 28 in 2014 and 206 in 2015. The investment amount has climbed from 180 billion yuan and 658.9 billion for 2014 and 2015, to more than 1.17 trillion yuan in 2016. The scale of this batch of projects also far exceeds the previous two, and the project implementation time is significantly shorter than before. For the third batch of projects, the time allowed to be spent on procurement has been shortened to 12 months, compared with 18 to 25 months for the first two batches. Projects not meeting the procurement schedule will be removed from the list of demonstration projects. The above policy shows China’s determination in pushing the development of the PPP. The government believes strongly that PPP would become the new engine for future economic growth.
The number of provinces and cities, and the varieties of industries covered by the third batch of PPP demonstration projects, has been increased. In terms of investment amounts, the transportation sector is the biggest, which accounts for about 56% of the total. Municipal infrastructure accounts for 15%, followed by environmental projects and general urban development projects, for 7% and 6% respectively. Based on the results, we can clearly see these are the areas the government is keen on developing. We expect the stocks in these sectors to benefit from the support of the state. Therefore, we are bullish in state owned enterprises and leading enterprises in the mainland and investors should look for investment opportunity there.