In mainland China (China), public-private partnership (PPP) has been defined as the partnership between the government and the social capital. County or upper level governments are in charge of implementing the PPP projects within their territory. Social capital includes domestic and foreign enterprises acting as legal persons, but will not include so-called ‘platform companies’ established by the government in the territory of the project, which have the function of raising capital for the government.2 Foreign investors’ participation in PPP projects is also subject to market entry policies.
China has gone through three stages towards accepting the PPP model. The first stage was around the 1990s, which began with building power stations using the build-operate-transfer (BOT) model, and followed with investments in toll roads. The second stage began with the landmark issuance of an administrative rule in 2004 by the then Ministry of Construction regarding the administration of concessions, as of which BOT, transfer-operate-transfer (TOT), build-own-operate (BOO) and other models became formally accepted in the field of public utilities such as roads, water supply facilities, sewage/garbage treatment plants and gas stations. As the beginning of the third stage, the past several years have witnessed a burst of growth of PPP in China. From the end of 2013 the Chinese government started to promote PPP in more aspects of public product and public service fields. It is encouraged to adopt the various types of PPP to provide public services in more sectors, including energy, transportation, water conservancy, environmental protection, agriculture, forestry, science and technology, affordable housing, medical treatment, public health, elderly care, education, and culture, etc.3 The requirements for PPP investment are increasing consistently. In August 2016, it was informally reported that the requested investment for projects listed in the PPP project library established by the Ministry of Finance (MOF) totalled 10,600 billion yuan. This does not include those projects listed in the PPP project library by the National Development and Reforming Commission (NDRC). In 2016 the Chinese government continued to develop the PPP model and included relevant content into the 2016 Government Work Report.4
The PPP related documents currently in force are relatively low in the legal hierarchy. It is reported that a law more specifically governing PPP is being drafted.
II THE YEAR IN REVIEW
In 2016, the PPP Law of China was still being drafted. There were still different opinions in certain industries and fields regarding whether the MOF or the NDRC should be the coordinating agency for developing PPP. The issues regarding asset-based securitisation of PPP projects were put on the agenda.
More PPP related rules were issued, the most noteworthy of which are discussed below.
On 28 May 2016, the MOF and the NDRC jointly issued the Notice on Further Jointly and Effectively Conducting the Work concerning Public-Private Partnership (Cai Jin  No. 32), which provides that each of the ministries and commissions shall coordinate in the aspects of steadily, properly and orderly advancing PPP work, further strengthening coordination and cooperation, effectively conducting the preliminary work of PPP projects, establishing and improving a reasonable mechanism of return on investment, raising in priority the financing efficiency of PPP projects, enhancing supervision and administration and strengthening the information disclosure of PPP projects.
On 10 August 2016, the NDRC issued the Notice on Effectively Implementing the Public-Private Partnership related Work in the Traditional Infrastructure Fields (Fa Gai Tou Zi  No. 1744) providing that Development and Reform Commissions at all levels should fully understand the importance of PPP in the field of infrastructure (including the sectors of energy, transportation, water conservancy, environmental protection, agriculture, forestry and major municipal works), increase the reserves of projects, implement joint review of projects, make the right decisions regarding projects, build a sound investment-return mechanism, normalise the implementation of projects, establish a multiple exits mechanism, enable financial institutions to function well, encourage and guide private and foreign investment and optimise the social credit environment.
On 24 September 2016, the MOF issued the Interim Financial Measures on Public-Private Partnership Projects (Cai Jin  No. 92), which includes seven chapters and 40 articles and provides that financial departments at all levels shall, jointly with other departments concerned, make a comprehensive arrangement of the financial funds, national assets and other public assets and public resources so as to cooperate with the social capital in PPP projects on an equal and mutually beneficial basis. The measures also provide specific provisions on recognition and demonstration of projects, government procurement, budgetary revenues and expenditures, performance management, asset-liability management, information disclosure as well as supervision and inspection.
On 11 October 2016, the MOF issued the Notice on Promoting the Work of Public-Private Partnership in the Field of Public Services (Cai Jin  No. 90), which provides that financial departments at all levels shall further promote the application of PPP in the fields of public services, including the fields of energy, transportation, municipal works, agriculture, forestry, water conservancy, environmental protection, affordable housing, medical and health services, elderly care services, education, culture, sports and tourism, etc.
On 24 October 2016, the General Office of the MOF issued a document which solicits advice on the Guidelines for Value for Money Assessment in Public-Private Partnership (Revised Edition Draft for Opinion) (Cai Ban Jin  No. 118), which proposes numerous amendments to the former Guidelines for Value for Money Assessment issued in December 2015. Among others, amendments and improvements concerning the principle and method of quantitative analysis have been made in the new edition.
Also on 24 October 2016, the NDRC issued the Notice on Issuing the Guiding Rules for Implementing Public-Private Partnership Projects in Traditional Infrastructure Fields (Fa Gai Tou Zi  No. 2231) (the Guiding Rules), which includes six chapters and 25 articles, providing the operation progress of PPP projects in the traditional infrastructure field. In addition, the traditional fields of infrastructure, to which the guidance applies, includes the fields of energy, transportation, water conservation, environmental protection, agriculture, forestry and major municipal works, etc.
On 21 December 2016, the General Office of the NDRC issued the Administration Measures on Public-Private Partnership (PPP) Project Library in the Traditional Fields of Infrastructure (Trial) including four chapters and 16 articles, which combines the operating requirements of the online approving and supervising platform of the investment projects and further normalises the operating progress of PPP projects in the traditional infrastructure field. This document applies to the PPP project databases established by the Development and Reform Departments at all levels.
Also on 21 December 2016, the NDRC and the China Securities Regulatory Commission (CSRC) jointly issued the Notice on Relevant Work of Promoting the Asset Securitisation of Public-Private Partnership (PPP) Projects in the Traditional Infrastructures Field (Fa Gai Tou Zi  No. 2698), vigorously promoting and supporting securitisation of PPP projects on the agenda. According to this Notice, the NDRC shall select, support and guide appropriate PPP projects, based on recommendations by provincial Development and Reform Commissions at the beginning of 2017, aiming at issuing PPP project securitisation products as early as possible, summarising experiences while communicating and promoting such practice.
Besides publishing rules, both the MOF and the NDRC promote PPP projects by promoting PPP project libraries. In 2016 the NDRC issued the Administrative Measures on PPP Project Library in the Field of Traditional Infrastructure Field to strengthen the administration of its PPP project library. The MOF published, collectively with the Ministry of Land and Resources, the Ministry of Environmental Protection and other ministries and commissions, the third batch of demonstration PPP projects.
III GENERAL FRAMEWORK
i Types of public-private partnership
The types of PPP explicitly mentioned in the MOF PPP Guidelines mainly include operations and maintenance (O&M), management contract (MC), BOT, BOO, build-own-operate-transfer (BOOT), TOT, and rehabilitate-operate-transfer (ROT).
The type of PPP project is chosen in light of the specific conditions of each project and business and/or political requirement of the parties. In fact, neither the MOF Guidelines nor other government guidelines prohibit the selection of other types of PPP. That said, although the build-transfer (BT) model formerly applied in some previous public utility projects, it is not deemed a type of PPP in China in practice. Based on our understanding, this is because, first, BT is generally prohibited in most public projects when being deemed as a disguised form of government debt raising, and secondly, BT does not cover the operation and maintenance of a project, and does not comply with the long-term/full life cycle cooperation and risk-sharing nature of PPP projects, which is emphasised in China.
ii The authorities
At the central government level, ministries of the state council take charge of the guidance and supervision of PPP promotion in relevant fields according to the division of functions. The MOF and NDRC act as coordinating authorities in developing PPP in different fields by establishing project libraries, organising evaluations and approvals, and improving the relevant systems and mechanisms. Both the MOF and NDRC have issued guideline opinions on PPP and published guidelines on PPP contracts. Both authorities have also published PPP project lists and project libraries so as to promote PPP. Generally, the MOF will be in charge of coordinating PPPs in the field of public service, and the NDRC will be in charge of coordinating PPPs in the field of traditional infrastructure. But for certain fields or industries that provide public service with traditional infrastructure (e.g., transportation, municipal works, agriculture, forestry, water conservation, environmental protection), there is still a difference of opinion on which of these two departments will be the coordinating authority. This has raised some confusion in practice.
Alongside the coordinating authorities, the industrial administrative departments5 shall, in light of the characteristics of the industry, make active use of the PPP model to provide public services and explore and improve the relevant regulation systems.
In practice, most PPP projects are promulgated by county, municipal or upper level local governments. Besides following rules and policies issued by the central level government, the local level governments are in charge of promulgating specific policies and carrying out the implementation thereof pursuant to the existing plan and the realities of the region. Based on provisions of MOF or NDRC rules, in a specific PPP project, the competent county or upper level government is mainly responsible for the review, organisation and coordination, as well as the examination and supervision of the PPP project.
For the purpose of implementing a single PPP project, the government will appoint an implementation institution to be responsible for the preparation, procurement, supervision and transfer work of the project. According to the MOF PPP Guidelines, the local government itself and functional departments or non-profit institutions appointed by the local government could be the implementation institution of a PPP project. In practice, local governments may authorise a government invested company to act as implementation institution in some PPP projects. This could be a remnant left by the former practice and, besides other possible negative effects, may lead to failure of the relevant PPP project to be listed in the MOF demonstration projects list, and thus become unable to apply for the reward under the Reward Notice.
iii General requirements for PPP contracts
As mentioned, PPP projects are currently implemented in accordance with rules and guidelines regarding PPP and/or concessions, as well as laws, regulations and rules regarding fixed asset investments, construction, contracts, and the relevant industries.
The NDRC and MOF respectively have PPP project libraries, and the requirement for projects listed in these project libraries varies a little according to the rules of the two ministries.
The PPP project library of the NDRC is established on the basis of the online approval and supervision platform for investment projects, which means that the fixed asset investments of the projects listed in the PPP project library have already been approved by the government. The PPP project library shall be used as an important basis to arrange government investment, determine and adjust prices, issue corporate bonds and determine entitlement to special PPP policies.6 Projects listed in the PPP project library will be implemented in batches under the coordination of the industrial authority of the local government.
The requirement for projects listed in the PPP project library of the finance authority mainly requests the confirmation of the local finance administration authority. The project library has three categories: the storage project library, the implementing project library and the demonstration project library. Before being listed in the storage project library, the proposed PPP project will go through the examination of a provincial finance department. Before being listed in the implementing project library, the project must pass the value for money (VFM) assessment, and, for projects involved in the government payment or viability gap funding (VGF), the fiscal capability verification. If a project fails to be listed in the PPP project library of the MOF, its expenditure will principally not be listed in the government budget.7 This means payment by the government in this project cannot be made. As a principle the MOF requires that the total expenditure for all PPP projects shall not exceed 10 per cent of the general public budget of the local government.8 Otherwise, new projects will not pass the the fiscal capability verification and thus cannot be listed in the implementing project library.
Social capital shall be selected through a legal procedure. Public bidding is the most accepted choice. The choice of other methods will be subject to approval of the department at a certain level of government (see Section IV, infra). The bidding invitation should provide whether the social capital is required to establish an SPV to execute and perform the PPP contract with the implementation institution. The government may appoint certain institutions to participate in the SPV.9
According to the Concession Measures, the term of concession shall not exceed 30 years, but for projects with large investment and a long return cycle, a longer concession term is permitted.10 There is no mandatary requirement for the minimum term of a PPP project under the effective laws and regulations. According to an unofficial version of the MOF consultation draft of the PPP Law, the minimum term of a PPP project will be no less than 25 years. No value thresholds for PPP contracts are specifically provided for in legislative documents.
IV BIDDING AND AWARD PROCEDURE
As indicated in the PPP Procurement Measures and the MOF PPP Guidelines, social capital shall be selected through legal procedure. The MOF provides that the selection of social capital should be a government procurement (PPP procurement), and provided five methods for PPP procurement, including public bidding, invitation bidding, competitive consultation, competitive negotiation, and single source procurement.11 If a method other than public bidding is proposed to be selected, the implementation institution should first apply for approval of the finance department of a certain level of government.
The NDRC Guiding Rules also provide that the social capital shall be selected through public bidding, invited bidding, two-stage bidding, competitive negotiation, etc. However, the NDRC Guiding Rules further provide that, for PPP projects of which the engineering investigation, design, construction, supervision and supply of important equipment or materials are to be contracted to or supplied by the social capital investor itself, the social capital must be selected through bidding according to the Bidding Law.
i Expressions of interest
MOF and NDRC procedures are similar in this respect. An announcement of pre-examination of qualifications shall be released via the government procurement information release media designated by the relevant finance department at or above the provincial level (for projects listed in MOF project library) or on media appointed by the NDRC (for projects listed in the NDRC project library). The time period for submission of application documents for pre-examination of qualifications shall not be less than 15 working days from the date of release of the announcement (requirement of the MOF) or five days after the bidder issues the pre-examination invitation document (requirement of the Bidding Law). Where there are at least three social capitals that pass the pre-examination of qualifications, the implementation institution may continue the preparation of bidding documents. Where there are fewer than three social capitals that pass the pre-examination of qualifications, the implementation institution shall organise a new round of pre-examination of qualifications after adjusting the content in the announcement of the pre-examination of qualifications.
The bidding documents of a PPP project shall contain all procedural and substantive requirements of the project, and shall contain the evaluation method and criteria, draft contracts and other legal instruments for the PPP project. Among others, the bidding documents shall point out those details of the project contract that are variable during the negotiation for confirming procurement results. The PPP bidding documents shall also expressly state that the project contract must be submitted to the people’s government at the corresponding level for approval and shall not take effect until it is approved.
The MOF further provides that, where a competitive negotiation or competitive consultation procurement method is adopted, the project procurement documents shall, in addition to the contents prescribed in the preceding paragraph, specify the contents that may be substantively changed by the evaluation team based on negotiations with social capitals, including the technical and services requirements under procurement needs and the terms of the draft project contract.
ii Requests for proposals and unsolicited proposals
Generally the requirements for bidding documents are set forth in the documents calling for bids. If selection of PPP social capital is carried out through bidding, generally the proposal of bidders will respond to the substantial requirements and conditions as provided in the documents calling for bids.12
Compared with the public bidding procedure, the other methods, especially by way of competitive negotiation and consultation, provide relatively more space for the social capitals respecting the variable details. Briefly speaking, in the process of competitive consultation, the consultation group may make material changes to the technical and service requirements of the procurement and terms of the draft contract based on the consultation documents and the actual consultation situations.13 The material changes shall be effective parts of the consultation documents and be sent to all candidate social capitals. The candidates will submit a new response document accordingly.
A PPP project can be proposed by both the government and social capitals, but is usually proposed by the government. Both the MOF and NDRC confirmed in their respective ministry guidelines that social capitals may propose PPP projects. According to the MOF PPP Guidelines, the recommendation of potential PPP projects by social capitals shall be made to the financial departments (PPP centre) in the form of a project proposal.14 The Administration Measures on Public-Private Partnership (PPP) Project Database in the Traditional Infrastructure Field (Trial) issued by the General Office of the NDRC provided that a PPP project can be filled in and submitted by industrial departments, public institutions and various types of enterprises to the project database so as to be listed in the PPP project library.
iii Evaluation and grant
A legally established evaluation team shall be responsible for pre-examination and bid evaluation. The members of the evaluation team shall sign the qualification pre-examination report and the evaluation report.
The implementation institution shall establish a special working group responsible for the negotiation and confirmation of the final bidding results according to law.
The public body and the bid-winning social capitals to conclude transactions shall enter into PPP project contracts within 30 days after the notice of winning the bid or concluding transactions is issued.
Public notification and public announcements are requested for each step above.
V THE CONTRACT
There are three main kinds of payment mechanisms in PPP projects in China: government payment, user charges, and VGF.
The three mechanisms apply to different kinds of PPP projects. Public transportation such as highways, bridges and subways and public infrastructure for water and heat supply usually takes user charges. VGF refers to the economic subsidies the government provides to the project company to fill the gap for those PPP projects in which the user charges cannot cover the input cost and reasonable profits.
In practice, VGF can take different forms such as investment subsidies, equity investment, concessional loans, grant of other developing and operating rights and interests related to concession projects and so forth.15 In some projects applying the VGF mechanism, the government takes partial payment responsibility during the operation period.
According to the Guiding Opinions, the principle for the price of public utilities includes cost compensation, fair return, resource conservation, high quality and high price, and equitable burden sharing. In practice, the price is decided during the PPP procurement procedure, but is also subject to the restriction by the government. For PPP projects applying the government payment mechanism or VGF mechanism, the proposal of PPP projects including a payment and/or subsidies arrangement must pass verification of fiscal capacity before the project applies the mode of PPP. For PPP projects applying the user charges mechanism, the price shall be subject to the approval of the price administration bureau, if it is listed in the catalogue of prices fixed by the government.16
Both the guidelines for PPP contracts of the NDRC and MOF confirm that the parties will provide the adjustment of price in the PPP contract. The adjustment of price will be according to the project execution situation and performance evaluation results. A public hearing will be held before the price is adjusted.17
The General Contract Guidance on Public-Private Partnership Projects (2014 edition) (the 2014 General Contract Guidance) provides that the contracts of PPP projects shall specify the method by which private capitals will obtain payment. According to the nature and characteristics of the specific projects, the sources of income of the projects mainly includes user charges, the combination of user charges and government subsidies and the government procurement for the services.18
ii State guarantees
According to Chinese law the government is prohibited from providing a guarantee.19
The relevant rules provide that the minimum requirement risk of a PPP project may be taken by the government side. The measures for the government to take this risk in a project will be provided in the project proposal prepared by the implementation institution; among others, by making payment to the SPV for the margin between the guaranteed usage and the actual usage.
The payment made by the government is subject to the government fiscal budget. In practice the most popular method of the local government to ensure its payment to the social capital according to the PPP contract is, although not of a guarantee nature and not 100 per cent without risk, to confirm to the social capital that the expenditure of the PPP project will be listed in the local annual budget of the pay year. Previously the confirmation was generally in the form of a comfort letter, which has the risk of being deemed as invalid.20 The current system construction work for PPP shed light on listing the government payment and subsidy under the PPP contract into budget in a formal and more controllable way. According to the Guiding Opinion, China will set up systems to guarantee sustained and healthy development of the PPP model by including operating subsidies, correct operating charges and other considerations in the annual budget and medium-term financial planning, reflect and manage the same in the financial reports of the government, and report to the people’s congress at the same level or its standing committee. The Concession Measures also provide that the payment or subsidy by the government in VGF concession projects shall be linked up with the government’s annual budget and mid-term fiscal planning to ensure the requirements of fund appropriation. According to the Opinion of State Council on Setting Up Mid-term Fiscal Planning (2015), China shall begin setting out a medium-term financial planning administration system.
iii Distribution of risk
According to the MOF Guidelines, risks shall be allocated among the government and the social capital according to the principle of risk allocation optimisation, risk return equivalence and risk controllable, and upon overall consideration the management capability on government risk, the project return mechanism and the management capability on market risk. In principle, the commercial risks including design, construction, finance, and operation and maintenance of the project shall be borne by the social capital, and the risk of laws, policies and minimum requirements shall be borne by the government. Force majeure and other risks shall be borne by the parties jointly on a reasonable basis. NDRC also provided a similar risk allocation principle and arrangement in the PPP guidelines promulgated by it.
iv Adjustment and revision
Generally in practice, the PPP contract contains a general term saying that the contract can be revised or modified by the parties through mutual agreement and the revisions shall be in writing and formally signed by both parties. Even though the PPP contract does not have this term, the revision of contract by both parties through mutual agreement is a right under Contract Law. The Consultation Draft of the PPP Law requests the parties to sign a supplementary agreement through negotiation when it is necessary to make an alteration during the cooperation period. And the material change to the cooperation agreement shall be submitted to the original approving authority for approval.21
The parties may also provide in the PPP contract conditions or restrictions for the revision of contract on a specific issue. Of course the conditions and restrictions can be abandoned through negotiation.
v Ownership of underlying assets
The transfer of the ownership of the underlying assets depends on the different type chosen (for example, BOT, BOOT, TOT, etc.) and the terms of the PPP contract. In some types of PPP projects as listed in the MOF Guidelines, the ownership of the underlying assets is not necessarily required to be transferred to the social capital together with the transfer of occupation (for example, O&M). Some types of PPP projects do not have the necessity of ownership transfer, such as BOO. But most types of PPP projects have one or more asset ownership transfer step. For example, in a BOOT project, the social capital (in most cases through its SPV for the project) build the project asset, own the asset and operate the same in the cooperation period according to the PPP contract. Upon the expiry of the contract or early termination, it will transfers all the facilities, rights and interests therein (land use rights, etc.) to the government or the institution it appointed.
Transfer includes the transfer of occupation, and the transfer of ownership. Some PPP contracts do not emphasise the ownership of underlying assets, but owning assets during an operation could be important for projects having an asset-backed securities (ABS) plan by the social capital. PPP contracts generally prohibit the asset being used as security for other projects. Besides the above, competent authorities generally use the performance test to ensure the perfect function of the assets and the validity of the intellectual property rights and technical documents.
vi Early termination
PPP contracts may be terminated early in the following situations: (1) by the social capital due to the default of the government partner; (2) by the government due to default of the project company; (3) the government partner unilaterally terminates the contract under specific circumstances according to its legal power, which shall strictly follow the law and accompanied by adequate compensation; (4) any party may terminate the contract due to force majeure incidents which last so long or accumulate to some extent; or (5) a mutual agreement is reached to terminate upon negotiation.22
Besides traditional bank loans, financing PPP projects with new financial methods is encouraged. Social security funds, insurance funds and other public funds are permitted to support the project financing through debt, equity investment and other ways. Furthermore, PPP SPVs are encouraged to conduct structural financing and issue project earning bonds, project earning notes, asset-backed notes, among others.
The debt financing instruments based on project income are still in the preliminary stage of development in China. The first project earning bond was issued successfully by the Fourth Refuse Incineration Power Plant Project in Guangzhou in 2014. On 5 August 2015, the NDRC released the Interim Measures for the Administration of the Project Earning Bond, which provides guidance on the main aspects of the bonds.
In addition, the above-mentioned Chinese Government and Social Capitals Corporation Financing Support Fund was established this year and it is expected that government investment funds will play a larger role in the financing of the PPP projects at all levels in the near future.
The main obstacle faced by social capital remains the guarantee issue. Although policies say that earnings of PPP projects may be used as pledge to support loans,23 there is no legal support from the law. Where a finance provider deems this as a risk, it will be hard for the PPP project to be financed in the mode of project finance.
With respect to cross-border finance, foreign-invested SPVs are free to raise cross-border loans within the surplus between the total investment and the registered capital of the SPV. The foreign exchange rate risk involved is generally considered as commercial risk and usually assumed by the social capital.
By the end of 2016, the NDRC and CSRC collectively issued the Notice on Relevant Work of Promoting the Asset Based Securitisation of Public-Private Partnership (PPP) Projects in the Traditional Infrastructures Field, promoting ABS as one important financing method in infrastructure, especially for PPP projects.
VII RECENT DECISIONS
According to the Administrative Litigation Law and the Explanation of the Supreme People’s Court regarding the Administrative Litigation Law, a concession agreement is an administrative contract and lawsuits against the government’s failure to perform the concession agreement, or illegally modify or early terminate the concession agreement, should be heard by the court in accordance with the Administrative Litigation Law. Based on the above, many disputes over concession agreements have been submitted to the administration tribunal of the court.
In the second edition of this publication we introduced a case: Henan Xinling Highway Investment and Construction Company v. Huixian City Government, Henan Higher People’s Court, Civil Ruling No. 1-1 (2015). In this case the plaintiff launched a civil suit against the local government for the compensation for buying back the BOT project. The defendant argued that the BOT agreement on which the plaintiff’s claims were based was an administrative contract and ruled according to the Administrative Litigation Law. The Court finally decided in favour of the plaintiff, holding that the matters about financing, remuneration and default are agreed by the both parties as equal civil parties and the disputes arising therefrom are civil disputes.
The defendant, Huixian City Government appealed to the Supreme People’s Court in May 2015, and the Supreme People’s Court rejected the appeal.24 In 2016 the Supreme People’s Court published the written verdict, the rationale of which is noteworthy. The Supreme Court held that, in this case, the main purpose of the project was to develop and operate the Xinling Highway and to set up the highway toll station, which has a profitable nature and does not provide free public services to the public. Although one party of the contract was Huixian City Government, the other party of the concession agreement had enough autonomy upon reaching the agreement, and was not forced by the unilateral administrative act of the government. The concession agreement had rights, obligations and liability for breach clauses, showing the agreement was a consensus between the two parties on the basis of equality and equivalence. The concession agreement contained not only issues concerning administrative review, approval and licensing, which was only the component part of the contract and cannot decide the nature of the concession agreement. The purpose, obligations, parties, performance and contents of the contract in this case all showed a clear civil and commercial nature of this legal relation, and therefore this highway construction agreement should be identified as a civil contract. Thus, this case did not conform to the situations provided in the Administrative Procedure Law.
Another case – Hebei Huazhang Heating Co. Ltd v. Zhangbei Government, Zhangjiakou Intermediate People’s Court (2016) Jixingchu No. 2 Administrative Judgment – concerned the situation in which the concession right of the concessionaire was taken back by the government unilaterally. In October 2015, the plaintiff learned that its concession right had been taken over by the defendant, after which the plaintiff raised a lawsuit to the court in February 2016.
The court found out that the defendant failed to inform the plaintiff of its decision to take back the concession right according to the Administrative Measures regarding Concession in Civil Public Utility in Hebei, and thus breached the legal process. However, because this case relates to a public utility and the concession right had been re-granted to a third party, the cancellation will potentially affect the legal right of the third party and the public interest of the area.
The court rendered a judgment in August 2016, stating that the administrative act of the defendant for taking back the concession right from the plaintiff by a meeting solution was illegal, and the defendant was ordered to take remedial actions within two months of the judgment.
Compared with previous years, the PPP legal system matured in 2016. Looking at recent trends, detailed provisions and definite requirements rather than principles will be increasingly provided in PPP rules in the future. With the development of practice, the government is becoming more experienced in using the PPP model. Hopefully the draft PPP law will be published for opinion in the near future.
Considering the concern that in some cities the limit provided by the MOF – that total expenditure for all PPP projects shall not exceed 10 per cent of the general public budget of the local government – will soon be reached, end-user payment projects might become more popular. On the other hand, the possibility cannot be ruled out that the said limit be increased abstemiously.
Some investors are beginning to consider the liquidity of PPP assets. It is quite possible that ABS of PPP projects, or the transfer of assets to financial investors, will be taken into consideration.
1 Hui Sun is a partner at Zhong Lun Law Firm. The information contained in this chapter is accurate as of March 2017.
2 See the Guidelines for Implementation of Mode of Cooperation for Government and Social Capital (Trial Version) (the MOF PPP Guidelines) and the Notice of the General Office of the State Council on Forwarding the Guiding Opinions on Promoting the Public-Private Partnership Mode in Public Service Field (the Guiding Opinions). See Section II, infra.
3 See the Guiding Opinions.
4 Improving the PPP model, making good use of the 180 billion yuan in seed funds, and strictly honouring contracts in accordance with the law, so as to bring the enthusiasm of private investors to the table was written into the PRC 2016 Government Work Report. See: III. The major areas of work for 2016, 3. Tap the potential of domestic demand to increase the space for development, Report on the Work of the Government (2016).
5 This includes the departments of education, science and technology, civil affairs, human resources and social security, national land and resources, environmental protection, urban and rural construction, transportation, water conservation, agriculture, commerce, culture, healthcare and family planning, etc.
6 See Article 6 of the NDRC Guiding Rules.
7 See the Notice on Regulating the Operation of the PPP Integrated Information Platform (the Platform Notice).
8 See Article 25 of the Guidelines for verification of the Fiscal Capacity relating to PPP.
9 See the MOF Guidelines and the Concession Measures.
10 See Article 26 of the Concession Measures.
11 See the Measures for Administration of Government Procurement in Public-Private Partnership Projects (Cai Ku  No. 215) (the PPP Procurement Measures).
12 Please refer to Article 34 of the Implementing Regulations of the Government Procurement Law.
13 See Article 20 of Interim Measures for the Management of Competitive Consultation in Government Procurement.
14 The MOF PPP Guidelines, Article 6.
15 See Article 17 of the Concession Measures and the definition of VFM in the MOF Guidelines.
16 See the Price Law of China.
17 See Article 10 of the Guiding Opinions.
18 See Article 8 of the 2014 General Contract Guidance.
19 See the Guarantee Law of China.
20 Government organs are now prohibited to issue this kind of comfort letter. See Notice of the Ministry of Finance, the National Development and Reform Commission, the People”s Bank of China and the China Banking Regulatory Commission on Deterring the Illegal Financing Behavior of Local Governments (2012).
21 PPP Law of People’s Republic of China (Consultation Draft), Article 32.
22 The Guide on Contracts for PPP Projects (30 December 2014, MOF) mentioned the first four occasions.
23 Article 23 of the Concession Measures mentioned that the prospective earnings pledge loans for concession projects shall be explored and utilised. Support shall be granted to using relevant earnings as a source of repayment.
24 See (2015) Minyizhongzi No. 244.