Legal Positioning Of The Role That Government Plays In PPP Projects

Public goods are traditionally perceived as non-rivalrous and non-excludable, leading to ‘free-riding’ problem and the subsequent unwillingness for the private sector to invest. This is the reason why traditionalists persist in government being the providers of public goods. However, transaction cost theorists hold the view that majority of public goods possess some degree of non-rivalry and non-excludability, as a result of which reductions in transaction cost are the fundamental reasons for government’s provision of public goods. The key to the question of who would provide such goods is to figure out the one with lower transaction cost. This shift in public goods theories has led to a new consideration of the role that government plays.Recently, the regulatory documents published by the State Council and its ministries demonstrated China’s focus on the development of the Public-private partnership(PPP) projects in infrastructure and the service sector. Amongst all, Guidance on the Cooperation of the State and Social Capital announced by the State Economic and Trade Commission details the following. Government should better position itself, and establish equality and cooperation, and change its roles from direct provision of public goods to the cooperator of social capital and regulator of PPP projects, Thus, government is no longer a pure provider of public goods, but rather the cooperator and regulator.The life cycle of PPP projects can be divided into the five phases of establishment, preparation, purchasing, execution and delivery. Risks involved can be mitigated by implementations of projects. For instance, lack of bidding, financing risks, excessive operating costs can be viewed in two ways in legal studies. On one hand, risk sharing is based on contracting relating to the responsibilities and duties of the state and the private sector. On the other hand, as the government carries the ultimate responsibility of public goods provision, they have power to regulate the private sector. In addition, other risks reflect the lack of protection by law and institutions, such as little government credibility and imperfections in laws and regulations.Hence, it can be seen that government can play the roles of a cooperator and regulator. The former can include power and responsibility allocation based on the risks arising from contracting in different life cycle stages, and specification of the role as a cooperator accordingly. The latter can be clarification of public responsibilities and the consequent regulatory power according to the potential risks involved in the life cycle, and specification of the role as a regulator.In terms of legal protection in the above-mentioned roles, this author generalizes the validity of the state guarantee, formulates a manual for contracting, sets up the legal framework for PPP, establishes the mechanism to resolve conflicts, and launches the system for information disclosure according to different risks.