The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
In this paper, we argue that there is much room for China to strengthen its regulatory
framework for public-private partnerships (PPPs). We show that infrastructure projects carried
out through local government financing vehicles (LGFVs) were largely unregulated PPPs, and
significant fiscal risks have already manifested themselves. While PPPs can potentially provide
efficiency gains, they can also be used by governments to circumvent budgetary borrowing
constraints. Therefore, effective PPP regulation is key to delivering PPPs' benefits while
containing their potential fiscal risks. The authorities have taken concrete steps in order to
establish a sound regulatory framework and foster a new generation of PPPs. However, to
make the framework effective, we highlight a few issues to be resolved. Based on international
best practice, we propose a four-pillar regulatory framework for China, which could be
implemented gradually in three stages.