Application Of Public-private Partnership Financing Mode In Chinese Expressway Project

Since the20th century China has experienced an uptrend economy process, which leads to the increase in traffic demand and thus the need to taking faster steps in constructing and extending road infrastructures.Given the requirement of enormous capital investment in these constructions and extensions, achieving such a development in road sector solely depending on public sector has been a beyond-conquering challenge. Indeed, it is also the time for private sector to participate into the market for public infrastructure service along with the arrived opened door policy and a series of institutional reforms during the past20years in China. Facing the huge financial pressure, it is necessary to adopt an innovative approach to involve private sector capital adequately to participate in traffic infrastructure construction. So, PPP (public-private partnership) mode is favor to government, because this kind of model can make government introduce private capital without losing the control over the projects.PPP mode are usually defined as a one-term cooperation agreement between governments and the private sector. The government will entrust project construction and operation maintenance to the private sector, while the private sector assume certain risks to obtain the corresponding profits. Selecting for private enterprises in PPP mode is through a competitive bidding process. In contract period, the government’s goal is to provide the public with low price and high quality services,but for the private sector, the goal is to maximize the benefits. As a result of two goals are uniformity, problems will come up inevitably, and even lead to the failure of the project. These issues include the project risk allocation, principal-agent problem and the imperfect legal system environment.Facing the aroused problems, theory on PPP and principal-agent relation has been studied including shaping up a favorable institutional environment, selecting the right contractor and providing right and adequate incentives.Findings from the empirical research reflect two orientations, one is the Chinese disappointing institutional circumstance and another is the emerged strategic behaviors from the private sector. The Chinese institutional circumstance for applying innovative PPP is characterized by deficient and inconsistent legal laws and cumbersome regulations, the gap of achieving transparency law, and the non-fully independent judiciary. Such a disappointing institutional environment has brought in multifaceted corruptive behaviors such as bribery, nepotism, breach of confidentiality and collusions between officials and private actors. In addition, both corruption and the underdeveloped regulatory framework result in increasing in transaction costs. Strategic behaviors manifest variously, both in the ex-ante contracting period and in the ex-post contracting process, in forms of collusions among candidate bidders and shrinking efforts during implementation of the work, known as problems of adverse selection and moral hazard. The aim of this paper is to provide some suggestions to solve the problems of adverse-selection and moral-hazarded at each stage of PPP projects and facilitate PPP projects in China.The full text is divided into five parts. The first part is an introduction, mainly introduces the research background and the significance, domestic and foreign research present situation, research content and method. The second part introduces related theory, including:PPP relevant concept and theory, the principal-agent theory and the corresponding speculation and transaction cost problems, the incentive and constraint mechanism and measures of supervision in the process of PPP project. The third part analyzes advantage and risk analysis with the PPP financing mode in highway project. The fourth part analyzes the current situation of project financing in our country highway. The fifth part analyzes the problems of project financing in Chinese highway projects with case study, and put forward the corresponding measures to solve opportunistic behaviors in the course of project financing. The sixth part is the conclusions and policy recommendations.