Understanding the risks in China's PPP projects: ranking of their probability and consequence

TLDR

China’s government has expanded PPP experience over the last decade and has worked to improve the investment environment. This study aims to evaluate the potential risks in China’s PPP projects with up‑to‑date data. The authors used a two‑round Delphi survey of experienced practitioners to identify key risks, quantified their probability and severity to compute a risk significance index, and then analyzed consequences, impacted parties, and allocation preferences. The top ten risks ranked by the risk significance index are government intervention, poor political decision‑making, financial risk, government reliability, market demand change, corruption, subjective evaluation, interest‑rate change, immature juristic system, and inflation, and the study offers commercial‑principle recommendations for government‑private consortium contracts.

Abstract

Purpose Based on the Chinese government's increased public‐private partnership (PPP) experience in the last decade, they have made a lot of efforts to improve the investment environment. This paper hence aims to conduct a more up‐to‐date evaluation of the potential risks in China's PPP projects. Design/methodology/approach As part of a comprehensive research looking at implementing PPP, a two‐round Delphi survey was conducted with experienced practitioners to identify the key risks that could be encountered in China's PPP projects. The probability of occurrence and severity of the consequence for the selected risks were derived from the surveys and used to calculate their relative risk significance index score. Findings The results showed that the top ten risks identified according to their risk significance index score are: government's intervention; poor political decision making; financial risk; government's reliability; market demand change; corruption; subjective evaluation; interest rate change; immature juristic system; and inflation. Further analysis was conducted on these risks so that the possible consequence, the most impacted parties, and the preferred allocation are discussed. Recommendations on commercial principles or contract terms between the Chinese government and private consortium are also provided. Originality/value These up‐to‐date findings concerning the probability and consequence of key risks would provide a valuable reference for private investors who are planning to invest in infrastructure projects in China.