德银-港股-投资策略-政府和社会资本合作季度新增增速放缓-20180130-14页_843kb

Summary of Asia Hong Kong Strategy Report: Featuring PPP Part 5

Core Content

This report provides an update on the Public-Private Partnership (PPP) implementation in China, highlighting the progress and challenges in the sector as of the end of 4Q17. It also outlines the strategic focus areas of the government, including environmental projects, rural revitalization, and poverty alleviation. The report includes a conference call with Ms. Man Li, Deputy Secretary General of the China PPP Research Committee, to discuss the policy outlook on environmental PPP in China.

Main Points

• PPP Investment Trends:

  • Total planned PPP investment in China reached Rmb18.2tr by 4Q17, up from Rmb17.8tr in 3Q17.
  • The quarterly landing rate reached a new high of 38.2% in 4Q17.
  • Net investment in new PPP projects slowed down to 359 projects in 4Q17, down from 3Q17, due to stricter listing requirements and a challenging financing environment.

• Infrastructure Investment:

  • Infrastructure accounted for approximately 25% of total FAI investment in 2017.
  • The share of infrastructure in FAI investment is expected to decrease to 11.7% in 2018E due to the tightening of PPP project criteria and the clean-up of unqualified projects.
  • By 4Q17, Rmb4.6tr or 25.3% of the total PPP investment had commenced construction.

• Sector Focus:

  • Environmental and rural revitalization projects have seen increased attention.
  • Environmental/greening projects had 1,556 landed projects with an investment of Rmb1.9tr, representing a YoY increase of 183 projects and Rmb268bn in investment.
  • Agricultural PPP projects totaled 68 in the database with Rmb62.7bn planned investment.
  • Poverty alleviation PPP projects involved 394 counties, which account for 47.4% of all poverty-stricken counties, with 1,272 projects and Rmb1.1tr planned investment.

• Policy and Regulatory Changes:

  • Document No. 92 from the Ministry of Finance (MoF) has tightened the standards for PPP projects and initiated a database clean-up, expected to be completed by the end of 1Q18.
  • The MoF is preparing for the fourth batch of demonstration projects, which will prioritize rural construction, ecological environment management, and basic public services.
  • The first three batches of demonstration projects had a total of 697 projects with Rmb1.8tr planned investment.

• Financing Environment:

  • While major banks like CCB and ABC remain active in financing PPP projects, some joint-stock banks have suspended new PPP financing due to uncertainty over the database clean-up.
  • The viability gap funding reached Rmb5.89tr, or about 55% of the planned investment distribution.

• Private Capital Involvement:

  • Private capital participation increased slightly from 34% to 35% between 3Q and 4Q17.
  • State capitals continue to be the majority contributor to PPP projects at 58%.

Key Information

• Conference Call Details:

  • Hosted on Wednesday, 31 January 2018, at 16:00 HKT (08:00 LON time / 03:00 NY time).
  • The call is in Mandarin.
  • Dial-in details are available upon contacting Deutsche Bank or your DB sales executive.

• Visual Data:

  • Figures 1 to 10 provide visual insights into PPP investment trends, project distribution, and sector performance.
  • These figures are sourced from MoF and Deutsche Bank Strategy Research.

• Equity Rating:

  • The report includes an equity rating key with definitions for Buy, Sell, and Hold.
  • Newly issued research recommendations and target prices supersede previously published research.

• Important Disclosures:

  • Deutsche Bank and its affiliates may hold debt or equity securities in the subject companies.
  • The report does not constitute investment, legal, tax, or accounting advice.
  • Opinions and estimates are based on current judgment and may change without notice.
  • Derivative and foreign exchange transactions carry significant risks, including market, counterparty, and FX risks.

Conclusion

The PPP sector in China is undergoing a transition phase, marked by increased scrutiny and a shift in focus toward environmental, rural, and poverty alleviation projects. While the implementation of PPP projects has accelerated, the net investment has slowed due to tighter regulations and a challenging financing environment. The upcoming database clean-up and policy adjustments may further affect the momentum of new PPP projects, but the sector is expected to maintain a relatively stable growth trajectory. Investors are encouraged to review the detailed disclosures and consider the potential risks associated with PPP investments.