1. Chinese Urbanism in Global Context
PLAN A6526
Columbia University
Prof. Weiping Wu
Land Finance and Infrastructure

2. China’s infra investment
Barreda and Wertime 2013.

3. Pudong airport and maglev train

4. Shanghai Yangshan port

5. Shanghai metro network

6. Infrastructure financing
Public investment (e.g. property tax as source)
Municipal bonds
Bank loans
Private participation (PPI)
Other official sources
Multilateral institutions (e.g. World Bank)
Development/INFRA banks (e.g. BNDES)

7. Industrialized countries Other developing countries
Quick comparison
Industrialized countries
Other developing countries
China
Borrowing from capital markets
(municipal bonds)
Local taxes
(e.g. property tax)
Land lease / transfer fees
Grants – internal and external
Borrowing – mostly from state banks
Grants & subsidies
(e.g. DOT, FTA)
Borrowing
User fees
Others

8. Sources of funding
Barreda and Wertime 2013.

9. Local fiscal context Fiscal decentralization
mismatch between expenditures and revenues between levels of government
fiscal gap for local governments
Local governments have neither adequate tax resources nor authority to borrow externally
revenue-rich regions keep more (as result of tax reform)
sharp rise in interregional disparities in fiscal spending

10. Impetus for land transfer
Urban land constitutes
Future extra-budgetary revenue
Collateral for local borrowing
Local fiscal context (Lu and Sun 2013)

11. “Land-infrastructure-leverage”
Common source of financing
borrowing through local government financing vehicles (LGFVs)
backed by future land lease revenues
Residential and commercial uses generates more revenues
Driving forces
Exhibiting achievement in economic growth
Maximizing fiscal profit

12. Land revenue as % in 2009

13. Key instrument – LGFVs Treated as municipal SOEs
(Source: Ueda and Gomi 2013)

14. Example: Beijing Capital Group
Formed thru merger of 17 state firms
Scope: infrastructure, real estate, financial services
Invest in and outside of Beijing
Infra projects largely thru BOTs
Acquire land development rights for residential real estate

15. Private infra investment ($million)

16. PPPs in China

17. Implementing PPPs Management and Lease Contracts
Concessions – private entity takes over SOE management
Greenfield Projects – private entity or a public-private joint venture builds and operates new facility
Divestitures  – private entity buys equity stake in SOE

18. Forms of greenfield projects
Build, lease, and transfer (BLT)
Build, operate, and transfer (BOT)
Build, own, and operate (BOO)
For BLT, BOT and BOO, government usually provides revenue guarantees thru long-term take-or-pay contracts for bulk supply facilities or minimum traffic revenue guarantees
Merchant
government provides no revenue guarantees

19. Management & lease contract
Implementing PPPs
Concession
Divestiture
Greenfield
Management & lease contract
Asset ownership
Public
Private
Public/private
Capital investment
shared
New services
Yes No
Typical duration
20-30 years
indefinite
1-15 years

20. Select PPP projects in China

21. Select PPP projects in China

22. Risk premiums Regulatory risk Currency risk Demand risk
“Regulatory environment is first-order issue: with transparent, published rules, and independent of politics”
“Chinese infrastructure space is ‘a black box’ due to unpredictable regulations”
Currency risk
Higher than expected by domestic investors
Demand risk
General business risk