The systemic risk of private-public partnerships

CHINA ADVISORY - Report 03 Jan 2018 by Andrew Collier

• Regulatory Arbitrage. China is promoting Private-Public Partnerships (PPP) as the new way to stimulate the economy and bypass restrictions on local debt.
• Local Debt. This is implicit debt of local governments. Holders of Rmb1.28 trillion of domestic LGFV bonds and $34.0 billion of foreign LGFV bonds should be aware of the risks.
• Securitization. We estimate that 80 percent of the planned Rmb14 trillion in PPP investments are being securitized and sold to private consumers.
• Non-transparent Tax. This securitization is transferring fiscal expenditures from government to private sources.

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