Private capital cited as 'desirable' in urbanization

Updated: 2013-04-18
By Wei Tian ( China Daily )

Around 200 companies under Yan's control reported combined revenue of 360 billion yuan ($58.3 billion) in 2012, and Yan is looking to expand that figure to more than 1 trillion yuan in 2016.

"It is only when private capital plays a leading role that urbanization can be successful," he said.

One of Yan's star projects under construction is in Lanzhou, Gansu province, which is also a "build-and-transfer" project.

The project involves creating 25 square kilometers of urban area by removing more than 700 hills. The entire project requires a total investment of 75 billion yuan.

"The government doesn't have to pay a cent for the project at the beginning. We could let it to the government at a proper price when the project is finished, otherwise we could rent it out on our own," Yan said.

The Ministry of Finance issued a policy late last year asking local authorities to avoid irregular financing behavior, including "build-and-transfer" models illegally guaranteed by governments.

Zhao Quanhou, head of financial research at the ministry's Fiscal Science Research Center, said whether "build-and-transfer" could prove to be a feasible model depends on the repayment cycle of the project.

"If their participation in these projects is voluntary, private investors can serve as a filter of irregular financing of local governments," Zhao said,

But if the cycle is too short, it will only add more pressure to already heavily indebted local governments, he said.

According to Yan, "we're wiser enough not to invest in unprofitable projects. We will not deal with authorities who rely on blind borrowing and without the ability to repay debts".

In addition, Yan said, "build-and-transfer" could be a more transparent and reasonable model than project bidding.

"Many of the projects won by bidding won't even last for more than a year before they need maintenance, but ours come with a five-year guarantee," he said.