David's Blog on SOM3 Beijing - Post 5

August 18, 2014

China’s hosting Public Private Dialogue on promoting Infrastructure Investment through PPPs
We should be pleased that China agreed to host, under the auspices of the Investment Experts Group, a huge one-day Public Private Dialogue on promoting Infrastructure Investment through PPPs. After all, infrastructure development needs are acute – an estimated $50-60 trillion over the coming decade – and will need private sector engagement if sufficient funds are to be found. But I came away schizophrenic – encouraged, but concerned.
The first concern is that this workshop, underpinned by work commissioned by China’s Ministry of Commerce in Renmin University in Beijing, is reinventing the wheel. So much work has already been done over the past decade in APEC along the finance ministers’ track, and more recently in the Asia Pacific Financial Forum (APFF), that one has to question why another trail is being laid. If it is a matter of getting the message out to new and different audiences, then this is to the good. But it was not clear that this was the case.
The second concern that emerged over the day was that Renmin University’s undoubtedly smart academics were running up a learning curve that took little account of recent insights on how to galvanise private sector engagement, and PPPs in infrastructure-building. Two introductory presentations depicted the problem as one of a shortage of funds – in which context, a new Asia-Pacific Infrastructure Bank to compliment the work of the World Bank and the ADB and other regionally active financial institutions is an urgent priority. In reality, however, we have clarified over the past few years that the problem is not ultimately a shortage of funds, but a problem of managing and assigning risk. Thank goodness there were people at the workshop from the ADB, the OECD, and China’s Ministry of Finance (thoroughly familiar with the Finance Track work) to drive home this point. One hopes the Renmin team was listening.
It also became clear over the day that China has distinctive perspectives on the infrastructure-building challenge. First, the Chinese government is comparatively well endowed financially. It has been able to build massive infrastructure at home – railways, roads, ports, dams, metro systems and so on, without resort to the private sector. This has given China choices that many less well endowed governments have not had available to them. Second, China tends to bundle its massive State Owned Enterprises in with private enterprises. This can only lead to muddle. China’s SOEs, many of them carrying a sovereign risk credit rating, and working in close collaboration with Ministries, cannot realistically be looked at as private sector. They have different perceptions of risk and risk management.
So if China intends to press this Renmin University initiative forward – and there might be value in doing so – the team will need to take better account of the challenges facing less well endowed economies in the region, and of truly private sector enterprises, many of which still today see many formidable challenges in getting involved in long-life infrastructure projects. This can be a valuable complement to the work being done by the Finance Track, and by bodies like the ABAC-inspired Asia Pacific Infrastructure Partnership (APIP), but above all else there needs to be dialogue between IEG and Finance officials. The fact that China’s Finance Ministry was at the table for this Dialogue was a tremendous start.

Beijing Hotel and views from top of Beijing Hotel

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