The newly revised "Management Measures for Infrastructure and Public Utility Franchise" by the National Development and Reform Commission and other departments of China were announced on the 8th, focusing on solving the problems of difficult entry for private enterprises in this field that have been exposed in recent years. Franchise is one of the two main types of government social capital cooperation (PPP), with profits mainly coming from user payments. In 2014, China launched a round of PPP boom, moving towards another model where project income is highly dependent on government fees. Wu Youhong, a researcher at the Investment Research Institute of the China Academy of Macroeconomics, said that in the past decade, the franchising model has been weakened and weakened, and social capital lacks the motivation to actively innovate and reduce costs and increase efficiency. In the previous round of PPP promotion, state-owned enterprises, especially central construction enterprises, gained more competitive opportunities through construction qualifications, performance, financing and other advantages, while the willingness and participation of private enterprises decreased. To address prominent issues in this field, China launched a new PPP mechanism in November 2023, clarifying that all such cooperation will be implemented through a franchising model and prioritizing the participation of private enterprises. In response to the new requirements, the revised "Management Measures" extend the maximum term of franchising to 40 years, encourage private enterprises to participate in franchising projects through various means such as direct investment, sole proprietorship, controlling shares, and participation in consortia, and clarify that the benefits obtained by franchisors from improving business management and technology belong to them. This revision will also clarify the promotion of private investment as a legislative purpose in the General Principles, adding the basic principle of shared risk between the government and social capital, and requiring the selection of franchisees through open competition. Special financial support measures such as encouraging private enterprises to participate in franchise terms and providing equal financing treatment to enterprises of different ownership, will be implemented to increase support for private enterprises. The low integrity of government performance is another issue that the authorities are focusing on solving. The revised Management Measures propose to include the performance of government agency franchise agreements in the evaluation system of government integrity, and relevant breach of contract and dishonesty behaviors shall be recognized and punished in accordance with relevant regulations; It is clearly stipulated that relevant public officials will bear corresponding legal responsibilities for the exposed issues such as overdue payments and disguised approvals. Wu Youhong believes that the revised Management Measures will promote the comprehensive return of the franchise model, laying a institutional foundation for ensuring the standardized development and transparent operation of PPP projects. (Lai Xin She)
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