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Economy

China's public-private partnership party

$2.14tn is being lavished on 12,000 infrastructure projects

SHANGHAI -- China is keen to get more infrastructure projects off the ground through public-private partnerships. This kind of arrangement leverages the corporate sector's funding prowess and experience to build and operate subways and other public transportation systems.

Through March, China had 14.6 trillion yuan ($2.14 trillion) worth of public-private partnerships, most of which remain in the planning stage. Still, the yuan amount represents a jump of almost 70% from the previous March.

The massive spending spree is meant to reinvigorate the country's slowing economy. But too many ongoing, often poorly planned projects could stick the country with even more non-performing assets.

According to China's Ministry of Finance, some 12,000 public-private partnerships had been authorized through March -- 59% of which were approved in the previous 12 months. The deals span a range of construction projects -- from roads to school gymnasiums.

But only 20% of them -- about 3 trillion yuan worth, or an amount equal to Thailand's gross domestic product in 2016 -- had actually made it to the construction stage.

That leaves nearly 12 trillion yuan worth of infrastructure projects still on the drawing board or lining up contractors and vendors. These projects are to be realized over the next dozen years or so.

With so much money being lavished -- or about to be lavished -- on it, the country's construction sector is soaring. Sany Heavy Industry, a Beijing-based construction machinery maker, posted a net profit of 746 million yuan for the January-March quarter, an eightfold increase over its year-earlier total.

Zoomlion Heavy Industry Science & Technology of Hunan Province, meanwhile, was able to move into the black on a net earnings basis. It turned an 84 million-yuan profit after having suffered a 660 million-yuan loss a year earlier.

Both businesses credited public-private partnerships for their buoyant results.

But that piece of jargon -- "public-private partnership" -- is somewhat misleading in China's case. About 55% of the "private" companies are state-sponsored enterprises that fall under the control of the Chinese Communist Party or government.

There is another concern -- the fact that so many of these projects have been OK'd. According to Chinese media reports, a state-run company that failed to do careful cost projections won a project by bidding 10% of a third party's cost estimate.

Over the mid- to long-term, the infrastructure frenzy could possibly destabilize China's economy.

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