Selection of PPP Projects in China Based on Government Guarantees and Fiscal Risk Control

Abstract

Public-Private Partnership (PPP) is an effective investment channel for government to provide public services. PPPs have the advantage of transferring some project risk to the private sector. They also imply that the public sector should establish appropriate laws and regulations to enable government departments to effectively avoid the emergence of new fiscal risks, which may affect the sustainability of fiscal budgets. This paper expounds the fiscal risks implied by PPP projects in China and the status of government guarantees in various forms of PPP projects; chance-constrained goal-programming (CCGP) is used to simulate government project selection under budget and risk control constraints. The analysis takes fiscal space, the expected costs and benefits of government guarantees, and the possibility of excess government subsidies into consideration. Constrained by fiscal risk minimization and budget limitations, PPP projects with government guarantees can maximize social-economic net present value and simultaneously optimize welfare. The paper also puts forward corresponding policy recommendations based on the research findings.