Journal of Transport Geography 18 (2010) 301–313
Contents lists available at ScienceDirect
Journal of Transport Geography
journal homepage: www.elsevier.com/locate/jtrangeo
Introducing public–private partnerships for metropolitan subways
in China: what is the evidence?
Martin de Jong a, Mu Rui a, Dominic Stead a,*, Ma Yongchi b, Xi Bao b
a
b
Delft University of Technology, Jaffalaan 9, 2628BX Delft, The Netherlands
Harbin Institute of Technology, People’s Republic of China
a r t i c l e
i n f o
Keywords:
Public–private partnerships
China
Subway construction
a b s t r a c t
Rapidly growing motorisation has led to high levels of trafﬁc congestion and emissions and has encouraged large Chinese metropolitan areas to invest in subway developments. The ﬁnancial burden of these
projects, however, far exceeds the availability of available public funds. As a consequence, the Chinese
government has started to allow local governments with public–private partnerships (PPP) and private
ﬁnance to supplement the funding deﬁcit. Analysts often claim that countries have to fulﬁl certain institutional and other pre-conditions before they can make effective use of PPP. In this article, China’s record
in meeting those requirements is examined and conclusions are drawn as to where the remaining weaknesses lie. Seven recent PPP projects for subways in ﬁve large metropolitan areas in China (Shanghai, Beijing, Shenzhen, Chongqing and Harbin) are investigated empirically. Conclusions are drawn concerning
China’s current status regarding the use of PPP, the way it has been adapted to China’s ﬁnancial, institutional and geographical context and the likely prospects for PPP in China in the future.
Ó 2009 Elsevier Ltd. All rights reserved.
1. Introduction
The massive speed and scale with which economic changes are
occurring in China far exceed those anywhere else around the
world. China currently has over 40 cities whose population surpass
1 million, and 8 cities with more than 3 million inhabitants (Ai,
2006). Because of large differences in the standards of living between urban and rural areas, the pressure of urbanisation is only
bound to increase further in the coming years with huge implications for urban transport demand. Rising income among citizens
and a decrease in restrictions imposed on car ownership by the
Chinese government have already led to highly problematic levels
of trafﬁc congestion and air quality in most key metropolises (Ng
and Schipper, 2006; Smyth et al., 2008). National, provincial and
local governments around the country have concluded that massive investments are urgently needed. Road capacity should be enhanced at the national, provincial and local levels and the larger
cities are in need of Metro Rapid Transit (MRT) to provide viable
alternatives to car use. However, public funds to achieve these
objectives are limited. Subway systems, often considered the backbone of any metropolitan public transport system, require rapid
extension in some of China’s leading cities and development from
scratch in others. Like many other Asian countries, China is placing
high priority on construction and extension of subway networks in
* Corresponding author.
E-mail address: [email protected] (D. Stead).
0966-6923/$ - see front matter Ó 2009 Elsevier Ltd. All rights reserved.
doi:10.1016/j.jtrangeo.2009.06.013
metropolitan areas (Phang, 2007). In its latest annual report, the
Chinese National Development and Reform Committee (2007) estimated that there will be more than 30 cities with MRT construction projects underway in the next 15 years. The necessary
investment will surpass 600 billion Yuan (approximately €70 billion). Table 1, which presents the projected investments in urban
railways in China in the coming decades, gives an impression of
both the high ambition levels of the Chinese governments and
the enormous efforts involved to implement these ambitions.
The large majority of all transport infrastructure projects in China to date has been primarily ﬁnanced with national, provincial or
local public funds and managed by means of State Owned Enterprises (SOEs). Many of these SOEs have also borrowed money from
banks and incurred heavy debts (Hu, 2008; Huang and Chang,
2006). Since there are state guarantees for such loans, those SOEs
have always been able to borrow at low rates. They could also incur
serious cost overruns without going bankrupt or experiencing
great difﬁculties. Sound ﬁnances often mattered less than political
pressure and personal friendships. However, criticism of these
practices has grown in recent years: SOEs are now often accused
of running the complex, large and costly infrastructure projects
slowly, and in wasteful, unprofessional ways (Wei, 2004; Wang,
2004a,b; Xu, 2008). It should not be forgotten, however, that 10 cities in China, including some of the largest (Beijing, Shanghai,
Guangzhou and Shenzhen) have all used this ‘traditional procurement model’ for their ﬁrst subway lines. Shanghai did so with additional foreign loans, and Guangzhou with additional land rent
charges, which is also common in Hong Kong (Tang and Lo, 2008).
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M. de Jong et al. / Journal of Transport Geography 18 (2010) 301–313
Table 1
Chinese metropolises and their subway projects.
Name
Date of
completion
Number
of lines
Metropolitan areas already having a subway system
Beijing
2010
11
2015
15
Shanghai
2012
12
2030
17
Shenzhen
2010
5
2020
13
2030
16
Guangzhou
2010
5
2030
8
Tianjin
2015
9
Nanjing
2015
7
Length
(km)
Estimated costs
(Billion Yuan)
270
561
510
780
154
267
585
130
206
235
263
93.6
268.2
160.0
225.4
68.3
115.3
290.31
40.1
81.6
104.1
132.8
Metropolitan areas with subway lines under construction
Xi’an
2009
1
20
2013
2
Shenyang
2009
1
22
2010
2
82
Harbin
2012
1
14
2030
5
143
Chongqing
2013
1
38
11.0
9.5
45.0
8.2
62.2
20.7
Metropolitan areas with subway lines in preparation
Kunming
To be built in 2009
Qingdao
To be built in 2010
Hangzhou
To be built in 2009
Note: Changchun, Dalian, Wuhan, Chongqing have light rail systems in place. These
are not included in the table, but to some extent perform a substitute function for
subways.
Sources: http://www.ccmetro.com/, http://www.drc.gov.cn/, http://www.df8.cn/
search.asp, http://www.urbanrail.net. The Future Layout of Subway Networks in
Shenzhen, Governmental Issued Document, Subway Construction and Administrative Centre of the Municipal Government of Shenzhen, 2008 (in Chinese). The
Construction Layout of Urban Rail Transit System of Shenzhen, Research Centre of
Urban Rail Transit System of Shenzhen, 2006 (in Chinese). The Review Report of
Construction and Operational Models for Mass Rapid Transit Systems in Beijing,
Urban Rail Transit Committee of the Chinese Transportation Association, 2007 (in
Mandarin).
The concept of public–private partnerships (PPP) was ofﬁcially
embraced by the Chinese government in 2001, when the Chinese
National Planning Committee issued the policy note entitled ‘Suggestions to promote and guide private investments’. This policy
note recommended the use of incentive mechanisms to attract private capital and extended the domains in which private investment was permitted (Chen, 2003). The set of permitted ﬁnance
channels was broadened, impartial tax policies were implemented
and governmental monitoring and management were improved. In
2002, a follow-up report ‘Suggestions to advance marketisation in
civil infrastructure industries’ was released, in which a concession
system was introduced (Chen and Qiu, 2005). Since then, these
beginnings have been supplemented by other statutes on public
bidding, a political framework for Build-Operate-Transfer (BOT)
projects in which its reach is extended and legal provisions have
been reﬁned (Chen, 2005).
Worldwide both positive and negative experiences with novel
contracting practices and outsourcing arrangements have been reported (Koppenjan, 2008; Koppenjan and Enserink, 2005; Phang,
2007; Chang et al., 2003). It is a good Asian tradition to systematically gather knowledge from foreign examples and good practices
and, subsequently, to implement the most useful lessons at home.
The adoption of PPP for transport infrastructure planning and
funding in China has been no exception to this rule. But international experts have made it clear that China still has a long way
to go for PPP. Compared to early adopter countries now seen as
mature and having obtained ‘executional excellence’ (e.g. UK and
Australia) and transient ones working on ‘effective governance’
(e.g. Spain, South Korea and Japan), China is in a group of relative
latecomers still working on ‘long-term commitment’ to PPP along
with countries such as Thailand, Brazil, India, Germany and the
US (Guo, 2007). Mature countries are now said to face issues related to perfecting their performance (producing robust business
plans, generating an attractive and stable risk allocation, having a
transparent and robust tendering process and an effective controlling framework in place). The middle group is working on a robust
legal and regulatory framework, clear standards for PPP-models,
project selection and evaluation and effective and capable government organisations. China, as a relative laggard, is still in the process of developing a clear vision for the role of PPP in infrastructure
delivery, generating a robust and transparent pipeline of viable PPP
projects and creating a positive PPP-image. According to Guo, China still has quite along way to go. On the other hand, it can be
questioned whether all countries around the world will inevitably
follow exactly the same path (Altamirano et al., 2008). When
adopting foreign institutions, the latter often merge with domestic
pattern of social interaction and acquire a distinct national ﬂavour
(de Jong et al., 2002). Incorporation of PPP in China can be anticipated to go through such a process of endogenisation as well. In
this paper we examine where China currently stands in the ﬁnancing schemes of recent subway projects, what the Chinese experiences have been to date, and how PPP has been adopted to ﬁt
the speciﬁc Chinese circumstances in the case of subway schemes.
More speciﬁcally, we address the following questions:
What are the main motives for introducing public–private partnerships for transport infrastructure in China (Section 2)?
What is China’s record and speciﬁc national ﬂavour in PPP adoption, seen in terms of ﬁve types of pre-conditions for effective
PPPs largely taken from the academic literature (Section 3)?
How has PPP been used in projects for subway infrastructure
projects in China? Here we examine 7 large construction projects in 5 Chinese metropolises (Chongqing, Harbin, Shenzhen,
Shanghai and Beijing), identify motives to choose for subways
and adopt PPP and its speciﬁc procurement model, describe
the main players, events and challenges encountered and evaluate the success of the project in question (Section 4).
What can we conclude from the evidence on the seven cases of
PPP-application for subway infrastructure in China, in light of
the ﬁve types of pre-conditions mentioned above? How has
the approach been appropriated within the Chinese administrative system and what challenges are ahead (Section 5)?
By providing answers to the questions above, the authors hope
to contribute to: (1) knowledge regarding the appropriateness of
transferring institutional arrangements originating in a typically
‘Western’ or ‘Anglo Saxon’ legal, political and cultural environment
to very dissimilar contexts, such as the Chinese one, and (2) insight
concerning the conditions for effective and equitable implementation of PPP in the world’s most populous nation is possible, where
accommodating the skyrocketing mobilisation in a sustainable
manner is in fact of global rather than just national importance.
We have based ourselves on relevant literature on the management of public–private partnerships and its application to subway
management, leading recent international and Chinese reports, relevant policy and project documentation in Mandarin, and a set of
interviews with policy-makers, managers and experts working on
subway infrastructure in the ﬁve cities under study.
2. Why introduce PPP for transport infrastructure in China?
Large transport infrastructure projects such as subway systems
require huge amounts of capital. Although some Chinese cities,
such as Guangzhou, have decided to continue to rely on traditional
M. de Jong et al. / Journal of Transport Geography 18 (2010) 301–313
public procurement models, many other metropolitan governments have begun to consider alternative forms of funding. This
has happened because they lack sufﬁcient ﬁnancial resources for
reducing congestion and developing transport infrastructure
investments even though they have been made responsible for
these tasks (OECD, 2006). In many cases, local ofﬁcials believe that
only funding from the private sector can ﬁll the immense gap between the limited presence of public resources and rapidly growing sustainable urban infrastructure needs. This is often the
dominant motive for adopting PPP for infrastructure projects in
developing countries: China is no exception. Generating Value for
Money, and boosting competitive pressures in the world of construction, is normally mentioned in ofﬁcial policy documents, but
in practice appears only of secondary importance in emerging
economies (Phang, 2007). Nonetheless, something may be changing in the hearts and minds of Chinese policy-makers and project
managers.
In the past, large construction contracts were awarded overthe-counter to partners well-known to the authorities, but often
in ways opaque to other parties and the wider public. These
long-standing practices led to growing criticism of ineffectiveness,
low speed, lack of transparency and even widespread corruption
(Mu, 2008). Competition through open tendering in the ﬁeld of
transport infrastructure is seen as a way of dramatically improving
performance (Xu, 2008). Developing a legal framework with clear
procedures regarding the phases of planning, tendering, design,
construction, maintenance and operation of transport infrastructure projects or any public service amenable to PPP is seen as a
way of improving transparency and accountability. It is also
claimed that it can save tax-payer’s money, create a level playing
ﬁeld among various suppliers, and force large SOEs to operate at
market prices by ending their de facto monopolies or cartels in
the business (Yusuf et al., 2006). In some countries, such as Spain,
Italy and Chile, this has been done by enacting speciﬁc full-ﬂedged
and detailed PPP-legislation, while other more pragmatic ones
such as Britain, Ireland, Norway and Finland have eliminated legal
inconsistencies between various pieces of legislation relevant to
PPP without an explicit attempt to make encompassing PPP-legislation (Bruzelius, 2005). In principle, China can still choose from
both legislative options. The advantage of the ﬁrst is its clarity
and completeness, that of the second its ﬂexibility of use. Using
competition to discourage Chinese SOEs from borrowing even larger amounts of capital for yet more new projects and reducing
their future debt levels seems a likely scenario. Demand for trafﬁc
is growing so fast that, regardless of their cash income from tolls,
expected revenue streams will be sufﬁcient in the coming years
to safeguard the eventual payback to their creditors.
While SOEs are expected to become more disciplined by these
institutional changes, market opportunities for segments of the
private sector are actually enhanced. Banking, construction, engineering and consultancy skills currently outside of established
consortia can deploy more activities in the construction sector than
before and acquire skills in new markets. Some observers even go
so far as to express the hope that the negotiations preceding good
contracts between public and private players will provide strong
incentives for both sides to apply more solid quantitative assessments of various project alternatives. More ‘scientiﬁc relations’ between governments and private organisations regarding prioritysetting, risk allocation and the sharing of responsibilities, costs,
beneﬁts and possible losses and proﬁts could be developed which
is expected to curb the number of arbitrary ‘political achievement
projects’ where ofﬁcials push through investment schemes to enhance their visibility at the expense of systematic policy analysis
(Wang, 2004a; Duan and Wang, 2006; Li and Zhang, 2006; Yan,
2005; Zhang, 2006; Ma, 2004). The logical implication could be
the use of rigorous ex ante cost beneﬁt, cost effectiveness or multi
303
Table 2
State council standards for infrastructure project approval.
Regional economic development indicator (GDP)
Urban GDP should be more than 100 billion Yuan
Regional population size
Urban population should be over 3 million
Project ﬁnancing approach
Project ﬁnancing approach should have been established
Customer demand
Forecasting on project-speciﬁc trafﬁc demand in single direction should
excess 30 thousand passengers per hour
Source: State Council, 2003.
criteria analyses and a reduction in politicisation and ofﬁcials
‘wheeling and dealing’ with each other. It could theoretically also
include the use of Public Sector Comparators (PSC) in which the
likely costs and beneﬁts of a PPP construction are compared with
those likely to arise if the project were done in a fully public mode
(Xu, 2008). The realism of this expectation of ‘enhanced rigour’
strongly depends, however, on the institutional requirements set
for the decision-making, tendering and selection procedures. If
much emphasis is placed on the merits of analytical studies as a
basis for project selection and limiting the production of biased
information, this effect might indeed occur. For that to occur,
incentives (not guarantees) are needed to ensure that most relevant decision-making aspects have been considered, and both public and private players can ensure that the costs, beneﬁts and risks
allocated to them will correspond with what they can realistically
bear. At the current stage in the evolution of this approach, however, local governments still attach little value to systematic policy
analysis, while China’s State Council (central government) assesses
funding eligibility for large infrastructure projects according to
four other, relatively generic variables (Table 2).
Last but not least, there is a strong macro-economic argument
to pour substantial amounts of private funding in public projects.
The reason for this is, as in several other countries in East Asia, China has comparatively high saving surpluses leaving banks with the
luxury problem of how to spend this inﬂux of money wisely and at
a high proﬁt. In addition, the growth in mobility and motorisation
in China tends to make the economic prospects of investing in this
industry markedly better than they would otherwise be. Consequently, if good prospects are offered free of excessive risks from
unexpected political intervention or engineering calamities, putting funds into transport infrastructure may be an attractive option
for private investors in China. In this comprehensive list of the
attractions of PPP ﬁnancing, it is interesting that the more ideologically framed pro-market arguments utilised elsewhere hardly
seem to play a role. Perhaps it is not surprising that need of funding, the wish to promote professional management, enhance transparency and keep costs in check prevail over issues such as rolling
back the state or getting consumer prices right. Having a socialist
market economy in place is presumably at least as much pragmatism as it is rhetoric. Consequently, Hodge and Greve’s (2005)
claim that some governments utilise PPP-speak as an instrument
to cloud actual intentions to contract out or privatise public transport services does not hold in China (see also Linder, 1999).
3. Pre-conditions for effective PPPs and the Chinese position
PPP has been deﬁned in many different ways (see for example,
Koppenjan, 2008; Hodge and Greve, 2005; Grimsey and Lewis,
2002) but there is general agreement that PPP projects involve private parties in the design, construction, maintenance and operation of a public infrastructure on the basis of long-term contracts
or arrangements. Some deﬁnitions focus mainly on the aspect of
304
M. de Jong et al. / Journal of Transport Geography 18 (2010) 301–313
private ﬁnance, while others give it a more comprehensive interpretation in which the division, sharing and management of various tasks at hand are included (Miller and Lessard, 2000; Li et al.,
2005; Devapriya, 2006; Pakkala et al., 2007). Hence, PPP as a general concept can be subdivided into many different forms of procurement models. Usually, the sequence in phases on which
typologies of procurement models are based are Design (D), Build
(B), Maintain (M), Operate (O), Manage (also M) and Rehabilitate
(R). Earlier approaches separated all of these phases in different
contracts granted to different actors; today it is more common that
they are merged into one contract. In addition, several aspects pertinent to contracting or construction that have not been covered
under the above terms are sometimes incorporated in the wealth
of procurement model acronyms. The main ones are Finance (F),
Bid (also B), Develop (also D), Transfer (T), Lease (L), Upgrade (U),
Purchase (P) and Own (also O). The rather traditional Design-BidBuild would for instance be abbreviated to the simple acronym
DBB, while a well-known more modern procurement model focusing on the entire infrastructure life cycle reads as Build-OperateTransfer (BOT). An arrangement where ownership permanently remains with the private sector would be Build-Operate-Own (BOO),
and if it is transferred back to the state after a number of years, it
would be Build-Operate-Own-Transfer (BOOT). Fig. 1 summarises
the different forms of PPP and their positions on the public–private
spectrum. Not all of the above mentioned procurement models are
currently being applied in China. The most commonly used forms
in China are Build-Transfer (BT), Build-Operate-Transfer (BOT)
and various forms of joint ventures.
What factors make for good PPP projects? According to international organisations, ﬂexibility, technical know-how, risk allocation to those players best able to carry them, market and
marketing expertise, transparent book-keeping and fast decisionmaking are believed to be the main contribution the private sector
can make to infrastructure development (OECD/ITF, 2007; Harris,
2004; Li et al., 2005; Zhang, 2005; Aziz, 2007). Most available public reports in which the international practice is evaluated explicitly indicate that efﬁciency in generating ‘Value for Money’
should the main target for using PPP for transport infrastructure
projects. The actual use of private ﬁnance as such does not necessarily provide a positive contribution to this objective (Virtuosity
Consulting, 2005; Bruzelius, 2005; OECD/ITF, 2007; Clifton and
Complete Public
Participation
Traditional
Public
Contracting
Design
Build
Maintain
Passive
Public
Service Private
Provision Investment
Government
bonds
Pubic
Provider
Dufﬁeld, 2006). Rather than seeking this high level objective most
governments are simply driven towards applying the PPP concept
once public funds have dried up as a short-term political necessity
when demand for transport capacity remains high. In many countries, the long-term consequence of such choices may very well be
that future generations will carry the ﬁnancial burden of these
investments, grow dependent on commercially-driven private
operators and/or that users of public transport will see an increase
in their charges. These circumstances will probably not trouble
Chinese subway commuters,: their governments do not aim for
large-scale privatisation of public transport, do not use personal
connections to remain in control of enterprises, do not face the
serious budget deﬁcits of some Western counterparts and usually
set up subsidy-mechanisms to make up for operator’s deﬁcits to
avoid raising user charges and causing public unrest (Boubakri
et al., 2008; Wu, 2007; He and Jin, 2001). Against that background
the following section uses a wide range of publications on the subject to discern ﬁve groups of preconditions for effective PPP projects (although we do not always follow their distinctions) and
pinpoint the general Chinese position on each of them.
3.1. Legal and rule-of-law preconditions
International reports specify a range of essential institutional
conditions that should be met before PPPs can be fruitfully put in
place (De Jong and Mu, 2008). It is often in developing countries,
which also have the worst record in overrated beneﬁts and project
cost overruns, that some of these conditions seem to be lacking
(Flyvbjerg et al., 2003). Among these conditions the presence of secure private property legislation, solid anti-collusion and antimonopoly laws and legislation enabling authorities to coherently
utilise PPP rank high. In addition, acts obliging both governments
and private parties to only proceed to action after economic, technical and environmental assessments have been conducted, crosschecked and improved, are crucial to the quality of decision-making. Underlying these speciﬁc preconditions regarding economic
legislation, there are general rule-of-law issues to be resolved. If
the above laws and acts are not effectively enforced, if effective recourse by private players to the law is not possible, and/or verdicts
reach by courts are not executed or followed by administrative
bodies, the entire framework mentioned above will also falter
Public-Private Partnership
Service
Contract
Management
Contract
Involvement Degree of
Public Sector
Lease
Joint
Ventures
Build,Operate
Divestiture
and Invest
Participation Degree of Private Sectors
and Corresponding Risks Borne
Complete Private
Participation
Full Divestiture
Privatization
Rehabilitate- Transfer Rehabilitate Lease- LeaseBuild Build - Build- Design- BuildOperate - Operate- Operate - Upgrade- Build- SPV+BOT Transfer Operate- Own- Build- OwnPassive
SPV+BTO
Private
Transfer Transfer Manage Operate- Operate
(BT) Transfer Operate- Finance-Operate Public
Service
(ROT)
(TOT) (ROM)
Transfer (LBO)
(BOT) Transfer Operate (BOO) Investment
Provision
(BOOT) (DBFO)
(LUOT)
Equity
Build RehabilitateDebt
TransferOperateguarantees
Operate
Leaseback
Grants
(BTO)
(ROL)
Investment Responsibility
Government Role
Private
Enabler
Fig. 1. Forms of PPP and degrees of private involvement (Source: Xu, 2008). For reasons of space in the table, BDOT falls under the same heading as BOT (see also
Kumaraswamy and Zhang, 2001).
M. de Jong et al. / Journal of Transport Geography 18 (2010) 301–313
(Chow, 2003). In the case of China, the evidence regarding the
above institutional preconditions is mixed. New laws to protect
private property and safeguard industrial competition have been
enacted in recent years, and a review is underway as to whether
new legislation to structure public–private partnerships is needed.
On the other hand, strong informal personal links between public
bodies and representatives of some SOEs or private corporations
make the existence of actual level playing ﬁelds in the market
questionable. For instance, when invited rather than open tendering is used for the selection of contractors, or when the criteria or
procedure for selection lack transparency, the odds are that weaker
project proposals may be chosen. Allowing for only public bookkeeping and ofﬁcial publication of both selection criteria and all
bids made would be a big step to increase openness, reliability
and accountability. Moreover, effective recourse to the law is
sometimes questionable as long as administrative organs operate
at the same hierarchical level as judiciary organs, the former are
not obliged to implement court rulings, and as long as all acting
judges in courts have to be members of the Chinese Communist
Party, and thus subject to the party-line. This makes both independent judgement and effective execution of court decisions problematic (Lieberthal, 2006; Chow, 2003). Individual citizens whose
individual interests are harmed by projects and corporations who
are unable to ward off unexpected and undesired interventions
by governmental agencies in the management practices may suffer
the consequences.
3.2. Checks and balances for adequate project appraisal
Less often mentioned, but equally important, is the presence of
checks and balances among the various players in correcting cost
and ridership estimates and the institutionalisation of counterexpertise against the initiators and beneﬁciaries of projects when
bids are evaluated and before contracts are signed. As some players
can beneﬁt from artiﬁcially low estimates, while the opposite goes
for others, checks and balances are the only way to mitigate the
presence of systematic bias. What is quite often noted as key to
the quality of cost and beneﬁt estimates is the allocation of various
types of risks (market, capital market, political, project, technical,
etc.) to those actors best able to estimate and deal with them. Since
there is very extensive literature on these issues, we do not go deeper into them here. Sufﬁce it to say that the institutionalised use of
counter-expertise and the keeping and sanctioning of each player
to its estimates and initial promises (within reasonable boundaries) would help to make a giant step forward in the quality and
reliability of decision-making and project management. China’s record is meagre on these counts but here it is in good company because very few countries have such preconditions in place. It must
be added, however, that the fact that systematic assessment methods and open communication on bids, cost estimates and project
relevant information are still in their infancy, make the Chinese
practice extra vulnerable.
3.3. Life cycle view
Alongside formal institutions, informal behavioural relations
among players should co-evolve as experience with the new procurement models grows. In case this lesson has not been picked
up from experience gathered in other countries, most players will
come to see the value of a life cycle view of transport infrastructure. Even though short contracts (e.g. 3–5 years) add more to
the competitive atmosphere among bidders, long-term contracts
(usually of 20 years and over) allow contractors to spend comparatively more resources on technical innovation and sustainable
solutions. As they feel secure about their stream of resources over
the years so they can connect design, construction, maintenance
305
and operations with each other and generate economies of scale.
Some claim that the beneﬁts of long comprehensive contracts with
reliable and knowledge contractors far exceed those of short specialised contracts (Pakkala et al., 2007). The latter form of contract
may lead to a narrow focus on cost-cutting and induce opportunistic behaviour by systematically overlooking relevant activities not
explicitly mentioned in the contracts. More generally, lasting commitment and trust between partners is indispensable in realising
the symbiosis expected from PPP. Otherwise, both public and private partners will be strongly driven by cost-saving and effort minimisation. The latter conduct often arises when doubtful actions or
omissions, from a wider socio-economic perspective, are not illegal
and can therefore pass with impunity. Here, China is still at the
beginning of the learning curve. Public agencies are sometimes still
struggling to ﬁnd reliable partners, or even struggling to be reliable
partners themselves by refraining from infringement in detailed
construction matters. In this early stage of the learning curve the
choice for many Build-Operate-Transfer style projects (BOT) as a
careful start-up of the process of gathering more experience has
probably been wise, given painful experiences with broader procurement models utilised in other Asian cities, such as Kuala Lumpur and Bangkok (Phang, 2007). Freedom of contractors to design,
construct, maintain and operate independently without outside
support, monitoring and infringement require skills and a sense
of responsibility that can only grow over time. In most nations
where innovative contracting has been tried for some time, explicit
efforts were made to formulate deﬁnitions and lists of quality demands and requirements through which contractor performance
can be better monitored and evaluated (Altamirano et al., 2008).
These indicators or requirements were formulated at higher aggregation-levels to prevent public agencies from mingling with technical speciﬁcations that were under the responsibility of
contractors, while allowing them to maintain an eye on general
service quality. Only the most advanced PPP experience, in countries such as Britain and Finland, have utilised these dimensions.
3.4. Intelligence and experience in tendering and administering
incentives
Another crucial requirement for successful use of PPP, and perhaps even the prevention of a project disaster, is the selection of
credible, knowledgeable, experienced and reliable contractors.
Intelligent tendering and smart contractor selection often necessitate drawing lessons from other cities/countries and gaining personal experience. The relevance of introducing ﬁnancial
incentives by public authorities in ways that push contractors to
deliver fast and keep service quality high across time are important. It is normally considered unwise to start payments before
the ﬁnal infrastructure product has been delivered and available
for passenger-use. Alternatively, payments can be made to contractors at regular time intervals based on their actual (and satisfactory) delivery of the required products and services. China’s
record on this count is extremely varied, as is reﬂected in analysis
reported in Section 4. More often than not, administering speciﬁc
incentives in project management depends on circumstances in
individual projects rather than the broader approach of a country’s
policies. What can be said in general here is that close ties between
public and private players involve a serious liability, which is only
increased if bids from unknown and doubtful contractors are involved (Mu et al., 2008).
3.5. Market considerations
Two market-oriented considerations need to be mentioned
here. Firstly, in the more entrepreneurial countries and constituencies, commercial land exploitation around transport links to
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enhance private beneﬁts and reduce public costs has grown in
importance and is sometimes vital to making projects ﬁnancially
viable. In China’s immediate surroundings, Hong Kong is considered an extremely valuable breeding ground and source of inspiration for such practices, possibly even a world leader (Shen et al.,
2006; Tang and Lo, 2008). Similar ideas are currently being tried
on several new subway lines in cities in China. The value of land
along newly developed routes has been claimed to increase by an
average of 20% in China (Ma and Luo, 2002). As we will see below,
this commercialised approach involves opportunities as well as
heavy risks especially if commercial gains are diverted into less
proﬁtable transport infrastructure construction. Secondly, the margin between private and public interest rates in the capital market
should not be excessive. Should that be the case, public borrowing
is much cheaper than using private pre-ﬁnance, and private investment is unattractive. In China, large amounts of capital are still
cheaper and easier to get for the government and SOEs than for private ﬁrms, because of public loan guarantees and substantial government and SOE pressure on banks to provide loans without
rigorous ﬁnancial-economic tests. Maintaining that margin will
weaken the application and subsequent sophistication of PPP
methodologies in China.
General description of the context of the project (location, basic
data, main events, starting date and current status/end date,
phasing)
Motives for choosing PPP rather than traditional public funding
Players and their positions
Organisation and quality of the tendering process, and reasons
why the winning consortium of banks, consultants and constructor was selected
Costs and beneﬁts, estimated and actual (if available)
It should be emphasised here that while most project relevant
data have been found, certain details (especially regarding actual
costs and beneﬁts and precise procedures followed during tendering processes) were impossible to lay our hands on in some cases.
However, we feel that these omissions have little impact on the
conclusions that are drawn.
4.1. 1st subway line in Chongqing
The ﬁrst subway line in Chongqing has been under preparation
for more than 60 years, and is currently under construction (Fig. 1).
It will be 36 km long and the total estimated project costs are of
12.5 billion Yuan (actual project costs are still unknown, since
the project has not been ﬁnished yet). The project is divided into
two phases: the ﬁrst from Chaotianmen to Shapingba (to be completed in 2011) and the second from Shapingba to the University
Town (to be completed in 2013) (Chongqing Metro, 2007). Trafﬁc
congestion has been the main driving force behind developing a
metro network consisting of seven lines: one subway line, ﬁve light
rail lines and a circle light rail connection, to connect the three different areas of Chongqing (Fig. 2). For the subway line, the main
objective was to create an intermodal network by connecting
two bridges, Longtoushi Station and Jiangbei airport. In addition,
the line provides a connection to Chongqing University Town
where universities are located.
This project was approved by the central government in 1992
and in the same year the Chongqing government signed a BOT
contract with the private Hong Kong construction ﬁrm Baohua.
The selection was not based on competitive tendering, since very
few enterprises then had the capacity to construct the required
tunnels. The Chongqing government chose PPP due to ﬁscal pressures and the wish to transfer project risks to a private player.
4. China’s record in using PPP for subway infrastructure
In this section, we will report on the evidence we have collected
from seven subway PPP projects in ﬁve metropolitan areas, while
keeping the ﬁve groups of preconditions (in Section 3) in the back
of our minds. The cases are:
1.
2.
3.
4.
5.
6.
7.
Line 1 in Chongqing (BOT)
Line 1 in Harbin (BOT)
Extension of Line 4 in Shenzhen (BDOT, 5+30 years)
Line 3 in Shanghai (Joint venture + SPV)
The Olympic Games lateral in Beijing (BT, 3 years)
Line 4 in Beijing (Joint Venture + SPV, 30 years)
Line 5 in Beijing (Joint Venture + SPV intended, public ﬁnance
with service contract for 25 years realised)
For each of the seven projects, we will provide a narrative containing following aspects:
Beiqiao
To Airport
YuBei District
YuZui
College city
Changjiang river
Jal
in
Case Study 1:
Chongqing Line 1
ri v JangBei District
er
Chaotianmen
Changshengqiao
Shapingba
District
NangAn District
Notes:
Chongqing subway plan
Jioulongpo
District
---line 1 is our case
Dadukou
---line 2 is in
operation
---other lines are under
construction
or planned
BaNang District
lines
1
3
5
Circle line
To Jiangjin
Yudong
Fig. 2. The Chongqing Metro Plan.
2
4
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M. de Jong et al. / Journal of Transport Geography 18 (2010) 301–313
Building tunnels was seen as a big challenge because of its technical complexities (Wang, 2008). In 1997, this BOT contract was terminated when a serious problem arose around the constructor’s
capital structure. In addition, the Chinese regulatory framework
was still insufﬁciently developed to assess the arguments brought
forward by the constructor during the building activities. Baohua
felt insecure during the renegotiations and lacking in legal protection. It decided to withdraw and left the project unﬁnished. Ten
years later, in 2007, after a new feasibility study, the central government approved work to complete the project. Again, a BOT
contract was signed, but this time the selected partner was the
Chongqing Metro Group (CMG), a state-owned enterprise. Some
20% of the project costs is borne by the Chongqing government
and the remaining 80% by CMG. The government receives income
from road tax (about 0.3 billion Yuan), the auctioning of the right
to develop real estate around transfer stations (3 km2 for approximately 2 billion Yuan) and the issuance of bonds (0.2 bilion
Yuan). The private investment share is obtained from the constructor itself (2.5 billion), deals with small subcontractors (3.75
billion) and bank loans (6.25 billion). Most recently, the estimated
project costs have increased by 3 billion Yuan. The initial design
included a 3 km line on ground level, but complaints regarding
noise disturbance led to a decision to use underground construction (China Tunnel, 2008). This adjustment led to an increase in
project costs and implied a re-negotiation between the Chongqing
government and CMG on how to share the additional ﬁnancial
burden. Eventually it was agreed that the government would assume the extra costs, since it was the government that initiated
the changes in the contract to serve the public interest. Apart from
this cost increase, the partnership so far appears quite successful.
307
If renegotiations are needed, they are likely to proceed more
smoothly with public enterprises even if satisfactory legal provisions are absent. They enjoy higher conﬁdence and trust among
governments, and they normally have enough ﬁnancial clout to
engage in such projects, relegating private players to a role of
subcontractors.
4.2. 1st subway line in Harbin
The plans for a subway system in Harbin date from the late
1970s, and make use of a number of tunnels built for military operations. The initial 1979 plan consisted of a circular subway connection (line 3) and four metro links (Fig. 3). A total length of 143 km
was planned, requiring a total investment of 80 billion Yuan.
This amount, however, proved an insurmountable hurdle. The
programme failed to gain approval from central government after
repeated efforts by the Harbin government from 1998 until 2004,
because it did not meet the State Council standards mentioned in
Table 2 (see above). Finally, in 2005, the project was at last approved and design activities have now begun. The main drivers behind the investment scheme were to combat Harbin’s growing
congestion problems, to attempt to apply some innovative ﬁnancial constructions and to developing seamless transfer between
different transport modes (Zhan et al., 2002; Liu, 2008; Harbin
Government, 2008a,b). Since the Harbin government needed to
collect 38.4 billion Yuan for the subway line alone, it had to rely
on private ﬁnance and an extensive transfer of risks to private
players. In 2005, a BOT contract was signed with the Harbin Institute of Technology Group (HITG) after a closed invitation. How-
Fig. 3. The Harbin Metro Plan.
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M. de Jong et al. / Journal of Transport Geography 18 (2010) 301–313
ever, HITG did not succeed in raising the money either through
subcontracting or by means of bank loans and terminated the contract in 2006. The Harbin Subway Corporation (HSC), a public
enterprise founded in 2008 speciﬁcally for building the ﬁrst subway line, was the second candidate. This player, like the ﬁrst,
was chosen through a closed invitation. Although HSC held several
talks with the Industrial and Commercial Bank of China (ICBI) and
the China Development Bank (CDB), a critical mass of loans could
not be conﬁrmed. This second stalemate has temporarily ended
the construction activities, although the contract has not (yet) been
terminated. Although it may be claimed that the absence of a qualiﬁcation and open tendering process made the assessment of constructors’ investment and technical capacities a sham, it should
also be noted that few outside investors and constructors seem
interested in investing in public transport in Harbin. It is the capital
of Heilongjiang, which is known as one of the provinces with the
highest corruption rates in China (Pei, 2006), where many key politicians and civil servant, including a former governor, vice-governor, ten mayors and vice-mayors, a number court ofﬁcials and the
president of HITG have been removed from their posts (Mark,
2005; Gao, 2006). One can imagine that it is hard to convince banks
and constructors to invest or involve themselves in such an environment. The lack of interest among banks and contractors in the
Harbin metro plan does not imply, however, that there are no qualiﬁed bidders available in China. It has been suggested that socalled ‘bundling operations’, where private players are granted
the right of commercial property management along subway lines
(operation of commercial, industrial and residential estates), the
proﬁts from which can beneﬁt infrastructure construction, may
be a way forward. This arrangement was attempted in Shenzhen
(see below).
4.3. Extension of the 4th subway line in Shenzhen
Shenzhen already has two subway lines in place: line 1 and the
ﬁrst part of line 4, which together extend almost 22 km and have
cost approximately 11.6 billion Yuan. These had been funded
through traditional channels with 70% of the project expenditure
coming from the Shenzhen government and 30% from bank loans
obtained by the same government. However, given rapid increases
in car trafﬁc in the city (with 800 extra cars on the road each day
leading to a doubling of car ownership every 2–3 years) and the
goal of trafﬁc congestion mitigation along the North–South axis
and with Hong Kong, the long-term plans of the Shenzhen govern-
ment are far more ambitious. A complete network totalling 365 km
and requiring over 100 billion Yuan are envisaged (Fig. 4), which
makes reliance on private ﬁnance essential.
The Shenzhen government decided to develop the second phase
of line 4, running from Shaoniangong (the point connecting the
ﬁrst phase of the 4th line) to Qinghu in Northern Shenzhen. It is
16 km in length and the estimated project cost is 5.9 billion Yuan.
A Build-Develop-Operate-Transfer (BDOT) procurement model is
being used in which private players subsidise both the construction and operations from proﬁts obtained in real estate management, freeing the government from the duty to subsidise public
transport. After a competitive tendering process held in 2003 and
a subsequent qualiﬁcation assessment in 2004, the Hong Kong Metro Trafﬁc Corporation Ltd (MTR) won the contract. MTR’s 30-year
experience in operating Hong Kong subways had been a major factor in its successful tender. The signed contract deﬁnes a 5-year
construction period and gives MTR 30-year rights to operate the
line. Under the agreement, the Shenzhen government is responsible for acquiring land and selling it for 60% of its estimated market
value to MTR, while MTR assumes the tasks of ﬁnancing, constructing and operating the subway line at agreed user fees charged. MTR
was also granted the rights to develop 2.9 million m2 of real estate
along the subway line. The money earned from real estate development will be used for subway construction and operation, while
the Shenzhen government will monitor MTR’s performance.
Although the schedule indicated that construction activities were
to take place from 2004 to 2008 and be completed at the end of
this time, large-scale construction had not yet even begun in
2009. To date, MTR has earned proﬁts from the development of real
estate but has not yet put this money into subway construction,
which has been postponed time and again. As such, the project
cannot be regarded as a success story (Zhuang and Wang, 2008).
Public debate in Shenzhen has ﬂared up as to why MTR is not complying with the contract and why government monitoring of their
activities has been absent or ineffective.
4.4. 3rd subway line in Shanghai
Shanghai’s third metro line, known as the ‘Pearl Line’, is an elevated light rail connection unlike most of the lines in the Shanghai
metro system. It is part of an extensive network in the metropolis
and is 25 km long, running from Jiangyan Road in the North of the
city to Shanghai South Station (Sun, 2006). The main goal was to
improve North–South trafﬁc and it was completed in 2000
Fig. 4. The Shenzhen metro plan.
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M. de Jong et al. / Journal of Transport Geography 18 (2010) 301–313
Case Study 4: Shanghai Line 3
Jiang Yang
Road (North)
Fujin Road
Line 3
Line 1
Gang Cheng
Road
Line 8
Line 6
Shiguang
Road
Line 4
People’s Square
Line 2
Zhangjiang
Hi-Te Park
Songhong
Road
Guilin Road
Long Yang
Road
maglev
Line 3
Xin Zhuang
Shanghai
south railway
station
Linyang Road
(south)
Pudong
Int'l
Airport
Line 9
Song Jiang Xin Cheng
Fig. 5. The Shanghai Metro Plan.
(Fig. 5). Like all previous projects and the other subway lines in
Shanghai, it was intended to counter rapidly growing motorisation
and road congestion, especially since lines 1 and 2 did not then exist. Before construction, its estimated costs had been of 9 billion
Yuan. The eventual project costs have never been published. The
average daily ridership in 2006 has been established at 346,000
passengers and was expected to climb further to 1.5 million in
the years after that (Shanghai Metro Trafﬁc Design Institute, 2006).
Shanghai’s ofﬁcial approach is to separate investment, construction, operation and monitoring activities from each other. Moreover, the Pearl Line is not a PPP in the conventional sense, since
all players are publicly owned. For investment activities in this
Public–Public Partnership, the Shentong Group was established
by the Shanghai government in 2001 with the sole aim to facilitate
the ﬁnancing of the Shanghai metro system (Shentong is a socalled Special Project Vehicle or SPV).1 The main reason for setting
up an SPV was to separate the project-speciﬁc risks and those of the
investment enterprises themselves. Enterprises investing in large
infrastructure projects are released from debt liabilities if construction or operation activities fail. This form of public guarantee appeared to be sufﬁcient incentive to move the project forward and
complete it within a reasonable time-span. Shentong acted as a concessionaire on behalf of the Shanghai government collecting funds
mainly through public ﬁnance, bank loans, issuing (tradable) stocks
and bonds and reactivating existing assets. After a bidding process,
the Shanghai government identiﬁed another public player, the
Shanghai Railway Bureau Corporation, as having the ability to design
and construct the line. The ﬁnancial arrangements were such that
the Shentong Group contributed 1.37 billion Yuan, the Shanghai
Railway Bureau Corporation 1.33 billion, while 1.8 billion was bor-
1
A special purpose vehicle (SPV), otherwise known as a special purpose entity
(SPE), is a legal entity (usually a limited company of some type or a limited
partnership) created to fulﬁll narrow, speciﬁc or temporary objectives. SPVs are
typically used by companies to isolate a ﬁrm from ﬁnancial risk. A company will
transfer assets to the SPV to ﬁnance a large project thereby achieving a narrow set of
goals without putting the entire ﬁrm at risk.
rowed from foreign banks and 4.5 billion from domestic banks. For
the operation of the line, two other players were invited to tender:
the Shanghai-based Modern Rail Transit Group and the Shanghai
Subway Operations Company. Monitoring is the responsibility of
the Shanghai government itself. By means of performance-based
pay mechanisms, they are able to reward operators for good performance and sanction them for low quality services. Shanghai’s 3rd
subway line can generally be regarded as a solid, innovative project,
where time schedules were met and the quality of construction and
operation tasks have been largely sufﬁcient. Precise information on
costs could not be obtained however.
4.5. Olympic Games subway lateral in Beijing
The Olympic lateral is the only subway line directly connected to
the Olympic Area, running 6 km from Beitucheng to the Forest Park,
passing through the Olympic Sports Centre and Olympic Green. The
entire stretch is underground and project costs were estimated at
1.43 billion Yuan before construction, whereas the actual eventual
project costs were 1.09 billion: a saving of 0.34 billion (China Transportation Technology, 2008). The construction process started June
2005 and was ﬁnished in April 2008, on time for the Beijing
Olympics. In 2008, daily ridership had reached 5.35 million passengers (Xinhua News Agency, 2008a). The Beijing Olympic Games
subway lateral is part of the long-term plan of the 8th subway line
(Fig. 6). Building the 8th subway line ahead of schedule as an
Olympic subway lateral was justiﬁed by the expected increase of
trafﬁc demand during the Olympic Games and the desire to improve the accessibility of the Olympic Area by building links to
other existing subway lines. During the Games, this lateral only
served athletes and spectators (Jinghua Times, 2008).
In this project, only the responsibility for construction activities
was transferred to a private player, since the lateral is just a short
section of the entire 8th subway line, which is still in the planning
phase. The operating right is to be reserved for the operator that
will run the complete 8th subway in the future (Wang and Ma,
2008; Wu, 2008; Li, 2006). According to a Build-Transfer (BT)
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Fig. 6. The Beijing Metro Plan.
arrangement, the constructor was selected through international
competitive tendering. The Beijing government organised, assessed, and chose the contractor, which was to be responsible for
both project ﬁnancing and construction, although the Beijing government assisted in borrowing process by acting as a warrantor.
Three public-owned enterprises, China Railway Engineering Corporation (CREC), China CREC Railway Electriﬁcation Bureau Group
and China Railway No. 3 Engineering Group Corporation Ltd constituted the ‘Olympic Lateral Project Company’ and won the bid. After
project completion, the Beijing government purchased the project
by paying a lump sum to the contractor after thorough quality
inspection. This BT project can be considered successful according
to many criteria. Quality evaluation, eventual project costs and
time schedule, all were favourable. A few reasons stand out (inspired by Zhang, 2005):
Both national and local governments actively monitored project
progress, since failure was out of the question in this case.
Competitive tendering ensured the qualiﬁcation of the most
qualiﬁed contractor and drove prices down.
Post-project payment as it was agreed here provided incentives
for the contractor not to behave strategically and take project
quality and schedule seriously.
BT employed a short time horizon and reduced the risk of contract termination.
BT allowed for a higher percentage of bank loans in the total project funding. This reduces taxation levels imposed on enterprises, because taxes were paid after loans are returned to
banks.
The contractor enjoyed favourable conditions when applying for
bank loans due to the government’s guarantees.
The teaming up of enterprises in one consortium reduced project risks.
4.6. 4th subway line in Beijing
Beijing’s 4th subway line will run from from Anheqiao North to
Gongyixiqiao South and will have a length of 28 km (Fig. 6). Connecting the Xidan shopping centre, Beijing’s University Town, Beijing South Station and the Media Market (in Zhongguancun), all
congested areas along a North–South axis in Western Beijing, were
the main targets (Xinhua News Agency, 2009; China Invest, 2007).
Project investment costs have been estimated at 15.3 billion Yuan,
while ﬁnal ﬁgures cannot be given yet since the link was not completed at the time of writing (early 2009). Preparation began in
2004 and the project should be completed by September 2009
(Beijing News, 2008). Fiscal pressures drove the Beijing government to embrace the idea of setting up a joint venture structure,
the main advantage of which is that long-term subsidies to the
subway operator will not be necessary (Chai, 2006). Three private
M. de Jong et al. / Journal of Transport Geography 18 (2010) 301–313
players won the contract after a competitive tendering process to
which only a small selection of pre-qualiﬁed bidders were invited.
These three enterprises were the Hong Kong Metro Trafﬁc Corporation Ltd. (MTR), the Beijing Infrastructure Investment Corporation
Ltd. (BIIC), and the Beijing Career Group (BCG) (China News,
2006; People Daily, 2006). The signed contract covers a period of
30 years, of which the ﬁrst few are reserved for construction activities and the rest for operations. During the construction phase the
hard infrastructure (earthwork, tunnels and stations, representing
70% of the expenses) are being paid for by the Beijing government,
while other equipment (vehicles, ticket-machines, signalling systems, air-conditioning, ﬁre-protection, escalators, elevators, control devices and power supply facilities, representing the other
30%) will be privately funded and managed by an SPV, in which
MTR holds 49% of the shares, BIIC 49% and BCG 2% and function
as partners in a regular BOT project. While all three private players
are involved in construction, operations will be undertaken by
MTR. At the operation stage, BIIC will monitor asset, quality and
safety management. Should the SPV make excess proﬁts, BIIC will
act on Beijing’s behalf and appropriate some of the revenue. Conversely, should the agreed ticket prices and actual ridership be substantially lower than expected, BIIC will take compensatory
measures for the other partners in the SPV. The subway line will
to be transferred back to the Beijing government by the year
2039 (MRT, 2007). It is still premature to speak of success or failure
in this project, but construction costs, schedule and quality have
received positive appraisals to date (Beijing Government, 2009).
4.7. 5th subway line in Beijing
Beijing 5th metro line is a stretch of 28 km from Songjiazhuang
to Taipingzhuang, 17 km of which run underground (Fig. 6). The
main motivation of this project was the need for a direct and fast
North–South link through Central Beijing to relieve congestion
and also absorb a certain amount of passengers during the Olympic
Games in 2008 (Xinhua News Agency, 2008b). Construction started
in December 2002 and was completed in October 2007 (Beijing
Morning Paper, 2001). The estimated investment costs were 12.3
billion Yuan, 15% of which was used for acquiring land. Actual project costs have never been published and the ﬁnancing process has
been full of twists and turns. In 2001, the Beijing government
organised an international competitive tender calling on domestic
as well as foreign investors to participate (Beijing Evening Paper,
2001). SNC-Lavalin, a Canadian corporation, and three domestic
enterprises, the Beijing state-owned Asset Management Corporation Ltd., the Capital Group, and the Beijing Mass Transit Railway
Operation Corporation Ltd., won the contract and attempted to
set up a joint venture: Beijing 5th Subway Investment Corporation.
As in some of the previous cases, this SPV was aimed to limit ﬁnancial risks for the participants. The contract to be signed between
this project company and the Beijing government was to be a
BOT with operating rights extending for a period of 25 years. During the negotiations before the contract was ofﬁcially signed, two
different subsidy proposals were brought forward by both the government and SNC-Lavalin to ensure both affordable ticket prices
for passengers and acceptable proﬁt levels for the partners in the
SPV.
Subsidy proposal I was proposed by the Beijing government,
and entailed the Beijing government providing yearly subsidies
for the project company during its 25-year operation, based on
the gap between the agreed ticket prices before operation began
and the later actual ticket price. Proposal I was turned down by
SNC-Lavalin. It made a counterproposal II with the argument that
the Beijing government should pre-pay the full subsidy to the
SPV based on the ridership forecasts. Moreover, SNC-Lavalin proposed that the construction work (including acquiring land and
311
digging tunnels) should ﬁrst be completed by the government,
while the SPV would be responsible for investing in the railwaytracks, vehicles and other service facilities.
Before the SPV was ofﬁcially set up, the government orally
agreed to the second proposal and started construction activities
using public funds. However, in late 2001 the Capital Group withdrew from the project for lack of faith in its proﬁtability so that the
SPV was never established. Although construction continued, SNCLavalin’s excitement was much reduced after renegotiations with
other partners failed repeatedly. It ended up leaving the project
altogether. Interestingly, in 2002 when construction was nearly
completed, the ﬁnance issue was resolved with loans from China
Construction Bank (CCB) and HSBC, a British bank (China Industrial
and Business Paper, 2006). One of the three domestic enterprises,
the Beijing Mass Transit Railway Operation Corporation, returned
to the negotiation table and the operating rights of the 5th line
were transferred to it with a ‘service contract’, without competitive
tendering. The end result is that the project was completed on
time, construction and service quality are above standard and that
public funding (partly derived from public loans) rather than private ﬁnance paid for this project.
5. Analysis and discussion
To answer the question how China has adopted and further
developed PPP for subways, it is important to realise that there
are substantial regional differences in China. As the cases above
have shown, the largest metropolitan areas near the Eastern coast
(Beijing, Shanghai and Shenzhen) can be called ‘developed’ in PPP
management by any standard as their use of the PPP has been largely professional and successful. The Chongqing and Harbin cases
show a mixed picture to say the least, where the lack of critical
mass in the construction industry, lack of competition and overthe-counter granting of contracts between political and business
friends are far from unusual. But more can be said than this general
statement. First of all, the difference between public and private
players is often not so obvious in the Chinese context. Chinese PPPs
may have a private legal form and public shareholders, but their
managers remain closely in touch with their political counterparts.
They enjoy favourable conditions for obtaining loans from banks
(due to public warrants and personal connections). If they run into
debt they can generally expect ﬁnancial help from their government relations to keep their activities going. However perverse
some Western observers might ﬁnd this, it is what gives some of
the public enterprises in the seven cases under study in this article
a better record than many of the ‘really’ private enterprises who
lack many of these assets. In fact, we could even claim that many
of the PPPs described should even be called Public–Public Partnerships (i.e. not a true public–private partnership) and that in terms
of their performance in the high-tech ﬁeld of subway construction
and operations they perform at least, as if not more, favourably
than public–private partnerships elsewhere in the world. Although
some private players appeared on the scene with good intentions,
others have been driven by short-term proﬁt, such as the Hong
Kong enterprise in the Shenzhen case, where government incentives failed to force the transfer of proﬁts from real estate development to infrastructure development. A more commercial approach
to infrastructure development is fully in line with the rich experience that Hong Kong brings to bear to mainland projects, but the
incentives and monitoring activities have to be taken seriously.
More generally, it should be noted that devising clever incentives to push contractors towards certain behaviour deserves more
attention in these projects than it sometimes has received. The
Shanghai case appears to be a good example on this count. Connivance between government ofﬁcials and contractors has advanta-
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ges, but it also comes at a price. In most cases, transparent information on issues in the contracts and real project costs and beneﬁts is hard, if not impossible to obtain. Furthermore, open
tendering, accompanied by a solid pre-qualiﬁcation process, is
sometimes left aside for choices made in favour of contactors based
on untraceable criteria. In the worst cases, there is the odour of
fraud and corruption. Hence, the institutional framework for using
PPP in China has not yet been completed. The absence of legal safeguards has driven private players away from serious commitment
to mega-projects in China, although the situation has improved in
the past few years. Nevertheless, state-owned enterprises enjoy a
major advantage here, because public shareholders and personal
networks make legal security less crucial. In addition, the presence
of legal frameworks enacted in Beijing do not necessarily mean the
same rules apply to all provincial and local governments. Enforcement has been and remains a major issue in the Chinese administration, and one that private players have to reckon with. This is
especially true when the central government is not actively involved and looking over the shoulder of local government. The
choice of public or private origins of project funding seems not
to be the key issue. Often the choice for private ﬁnance was made
because the municipal purse was not big enough to afford infrastructure projects of this size. But it appears that public ﬁnance
ends up doing the job if private ﬁnance is not forthcoming, as in
the case of Beijing’s 5th subway line, or that governments can
safely choose to let a large share of the funds come from the local
budget, as happened with Beijing’s 4th subway line. Either way,
private ﬁnance did not as such seem preferable over public ﬁnance.
Other typical aspects of Chinese administrative culture are also
likely to persist and colour the way in which PPP is further developed. Guanxi (‘personal networks’), which can both oil decision
processes making policy and management more ﬂexible and cause
fraud and lack of open communication, is one of them (see for
example Friedmann, 2005). But if the case studies on PPP for subways in China have demonstrated anything in particular, it is that
they provide some checks on the power of overly inﬂuential personal networks. In essence, modernisation ties China to global
norms of transparency and accountability.
Acknowledgements
This paper is based on a study funded by the Dutch government
through the Habiforum Innovative Land Use Program, the Next
Generations Infrastructure Foundation and Delft University of
Technology through the Delft Research Centre for Sustainable Urban Areas. The authors would like to thank our interviewees in China for their help in preparing the paper and two anonymous
reviewers for their constructive comments on an earlier draft of
this manuscript.
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