Enforcement of Public-Private Partnership Contracts and the Distribution of State Ownership in China’s Infrastructure Projects

Despite the Chinese government’s efforts to privatize infrastructure construction through the public-private partnership (PPP) market, the majority of investors in this sector are still state-owned enterprises (SOEs). Moreover, the government that contracts for the infrastructure construction and service usually holds a significant proportion of shares in PPP projects. This chapter explains this phenomenon using the legal theory of SOEs. It finds that, in practice, the government typically retains the power to terminate PPP projects in the public interest when new circumstances arise, while the courts offer limited protection to private investors. As a result, private investors may be deterred from investing due to concerns about government opportunism. Furthermore, it observes that a judicial reform enhancing the independence of judges is associated with an increase in the proportion of shares held by private investors and a decline in shares held by SOEs and local governments. These findings suggest that a robust legal system promotes the extent of privatization by boosting the confidence of private investors.