What exactly does PPP project mean? In developed countries, PPP has a wide range of applications, which can be used not only for infrastructure investment and construction (such as water plants and power plants), but also for the construction of many non-profit facilities (such as prisons, schools, etc.). Now let's take a look at the relevant introduction of PPP project
At present, the three cores of popularizing PPP mode in China
Since the beginning of 2014, the national development and Reform Commission, the Ministry of finance, the Ministry of transport, the Ministry of housing and urban rural development and other ministries have successively issued a series of policies to encourage the promotion of the PPP model of social capital participating in the investment and construction of public utilities. Compared with the previous models, the PPP model vigorously promoted by the central government emphasizes different emphases, which is summarized as "three cores", specifically as follows:
Risk sharing -- more emphasis on the importance of operation after completion. According to the requirements of a series of policy documents such as the national development and Reform Commission and the Ministry of finance, one of the most important principles of the PPP model encouraged by the central government is "equal risk and return, and reasonably allocate project risks between the government and social capital". In principle, the construction and operation risks of the project are borne by social capital, and the risks of laws, policy adjustments and minimum demand are borne by the government, The risk of force majeure such as natural disasters shall be borne by both parties. " According to the risk sharing mechanism, the problem of how to divide the rights, responsibilities and interests of the two sides in the cooperation between the government and social capital is basically determined. That is, for social investors, they are mainly responsible for investment and financing, construction and operation, and also enjoy corresponding benefits. Among them, in the investment and financing stage, the government can authorize its platform professional companies to participate in some shares, so as to realize the responsibility of supervision and management in the process of the project and the responsibility of ensuring basic income during the operation period.
In addition, 'operation' is one of the important features of the PPP model. In the previous models of social capital participating in infrastructure projects, whether it is competitive contracting model or BT model, social capital focuses more on construction links, and the operation after completion is mainly organized by the competent government departments, specifically by their subordinate professional platform companies. In this round of PPP model, more emphasis is placed on the importance of social capital for the whole cycle participation of infrastructure projects. Such setting, on the one hand, is to change the requirements of the government's responsibility positioning. In infrastructure project management, the government's identity has gradually changed from "referee and athlete" to "referee". On the other hand, for social investors, they can participate in the whole life cycle of project investment, construction and operation, which is conducive to give greater play to their capital, technology and management advantages and maximize economic benefits.
Improve efficiency -- evaluate the project through the performance evaluation system. In the PPP guidance document issued by the Ministry of finance, 'value for money' is one of the most frequently used words. A complete set of "value for money" performance evaluation system is formulated in the document, which is included in the evaluation system from the early stage demonstration of the project, PPP scheme design, bidding, process supervision to the end of handover. To some extent, the central government has gradually withdrawn from its actual participation in project implementation, but the requirements for project process supervision are more strict, standardized and systematic. This also puts forward higher requirements for the professional ability of social investors.
'value for money', that is, the PPP mode is better than the original 'competitive contracting mode + government's own operation'. On the one hand, the full cycle cost of project construction and operation under PPP mode should be lower than that of the original mode. On the other hand, infrastructure projects under PPP mode provide more high-quality and cheap services to the public.
Affordable finance -- effectively reduce the financial pressure of local policies. In recent years, the scale of local government debt has been expanding. Most of them are debts formed by local governments themselves or their platform companies in the implementation of infrastructure projects. Since the second half of 2014, the Ministry of Finance and other ministries have continuously issued documents calling for deepening the reform of the budget system, focusing on adjusting the system reform of local government borrowing and avoiding systemic debt risks. In this context, how to ensure the promotion of infrastructure projects under construction and new ones, achieve steady economic growth, and effectively control the expansion of local government debt and the upgrading of debt risk is an important issue faced by the central and local governments. The PPP model vigorously launched this time is given this important mission.
On April 7, 2015, the Ministry of Finance issued the guidelines for the demonstration of financial affordability of government and social capital cooperation projects, focusing on how to carry out the demonstration of financial affordability when local governments implement PPP projects. Its core requirements are: first, all the support responsibilities of local governments in the implementation of PPP projects, such as equity investment, operation subsidies and supporting investment, are included in the medium and long-term financial planning and annual financial budget; second, carry out the affordability demonstration in the early stage of the project, and the PPP mode can be implemented only after passing the demonstration.
Under this mode, for local governments, the time cycle of the preliminary project mode design stage may be longer, but the overall operability of the project is greatly enhanced. For investors, the legitimacy and compliance of the government's future payment operations are better guaranteed, and the payment risk analysis is mainly based on the prediction and analysis of the future finance of the local government at this level.
PPP development trend
1. The total amount is growing rapidly, and it will land or exceed 3 trillion in 2018
In 2017, the new landing scale may exceed 2.5 trillion, and in 2018, the new landing scale may exceed 3 trillion. 1) From Q1 to Q3 in 2017, the PPP project library of the Ministry of finance increased by 4.3 trillion. Due to the improvement of project warehousing compliance requirements, assuming that the scale of newly added warehousing PPP in Q4 in 2017 is the same as that of last year's 1.04 trillion, the cumulative newly added warehousing in 2017 is 5.34 trillion, which is expected to be the same in 2018; 2) From Q1 to Q3 in 2017, the Ministry of finance's PPP project library landed 1.9 trillion, benefiting from the Ministry of finance's No. 87 document to reduce the scope of government purchase services and improve the application of PPP mode. It is expected that the landing scale of Q4 in 2017 will be 0.6 trillion higher than that in the same period last year, so the annual PPP landing scale in 2017 will exceed 2.5 trillion, and it is expected that the landing scale in 2018 will exceed 3 trillion.
2. Interest rates suppress valuations in the short term, and monetary policy stabilizes to guide valuations to return to fundamentals
The recent adjustment of PPP sector is large, which may be mainly caused by the expectation of upward interest rate: 1) the new RMB loans of financial institutions fell year-on-year in September and are expected to remain weak in October; 2) Since October, domestic bond yields have continued to rise, highlighting the tension of market funds; 3) The November meeting of the Federal Reserve has become more positive about the US economy, further improving the probability of US dollar interest rate hike in December. Since the middle of the year, the central bank has basically established a stable monetary policy attitude, and the policy strives to regulate the situation that the capital is not tight or loose. At the same time, the RMB exchange rate remains stable and strong, and there is more room for us dollar interest rate hike. The capital is expected to be gradually revised to be stable and neutral, helping the sector valuation gradually return to super fundamentals.
3. Real estate investment or downward superimposed infrastructure is expected to rise, and PPP logic will be strengthened
Decline in real estate sales or transmission to the investment side. Since the beginning of this year, real estate investment has shown strong resilience, and the investment growth rate is significantly higher than the market expectation, giving the government ample space for the contraction of fiscal policy. However, with the gradual realization of the effectiveness of strict policy control over real estate, the growth rate of real estate sales began to decline, especially in September, the real estate sales area increased by 1.5% year-on-year, and may continue to decline in the future. According to the estimation of the transmission cycle of about 6 months, real estate investment may continue to decline and PPP logical preference will increase from the second quarter of next year.
The recovery of infrastructure investment at the end of September is expected to continue, and the financial expenditure support is sufficient in the first half of next year. The seesaw effect of infrastructure and real estate investment is obvious. With the higher than expected real estate investment in the second and third quarters, infrastructure investment is significantly lower. Considering that it is the end of the year, the real estate regulation is still strict, the decline of real estate sales will be transmitted to the investment side, and the bottom recovery of infrastructure investment is expected to continue. In addition, fiscal expenditure contracted significantly in the third quarter of, providing room for fiscal expenditure expansion in the first half of next year, which can effectively support the continued recovery of infrastructure investment in the first half of next year.
4. Policy strengthening and rectification are carried out simultaneously, the project is more compliant, and the share of local state-owned enterprises / private enterprises is increased
At the third one belt, one road of PPP financing forum, the head of the Ministry of Finance said there was no new content in the speech of the Ministry of finance, including the policies and regulations, strict red line, strict control of risks, openness and transparency, performance management, etc., and also stressed the continued encouragement and support for PPP, including strengthening reward subsidies, supporting participation in the whole area and optimizing management. With the continuous expansion of PPP warehousing and landing scale, continuous standardization will become the norm, and the tone of policy support for the steady progress of PPP mode will not change.
At present, central enterprises are the absolute leaders of PPP market. In the context of financial deleveraging, SASAC has gradually strengthened the control of the total amount of central enterprises participating in PPP projects, prevented central enterprises from excessively participating in PPP projects and controlled the asset liability ratio of central enterprises. In the future, the market share of private enterprises participating in PPP is expected to continue to increase.
5. The market competition pattern was optimized, and the project return rate gradually picked up
Since the official launch of PPP in 2014, the rate of return of PPP projects has experienced from low market participation - less market competition - high rate of return in the early stage to high market participation - fierce market competition - low rate of return at present. As the market participants generally have full orders on hand, pursue order quality and rate of return rather than order scale, and the total amount of central enterprises participating in PPP projects, the absolute leader of PPP market, is gradually controlled, the competition in PPP market will slow down and the rate of return will gradually return to normal level.
6. 2018 is the year of landing, and companies with strong financing and control will benefit the most
Since 2016, PPP mode has been rapidly spread across the country. PPP warehousing scale and landing scale continued to grow rapidly. Benefiting from this, the orders of enterprises in the sector, especially leading companies, generally increased, and accumulated large-scale orders from 2016 to 2017. On the one hand, excessive competition in some regions leads to low project returns, and enterprises in the PPP sector turn to projects with higher returns; On the other hand, after accumulating huge orders, enterprises focus on digesting these stock orders instead of pursuing the rapid growth of orders.