Local Credit Systems for Urban Environmental Infrastructure

Miao CHANG, Tao FU, Jining CHEN
Tsinghua University

3.3 Major policy – oriented conclusions

According to the reform of China’s financial institutions and the development of commercial financing mechanisms, the tools for financing UEI projects include commercial bank loans, bonds, trust investment funds and multi-lateral authorized bank loans. These provide a multiple channel system for financing UEI.

·　At present, if system reforms are made to improve the ability of UEI projects in terms of both borrowing loans from banks and repaying them, commercial bank loans can be an important tool for financing UEI projects, but the following system reforms are necessary:

State-owned corporations involved in urban infrastructure development could be the borrowers eligible for bank loans, but not the juridical person of the UEI project. For a UEI project, the borrower should be different from the owner of the project. In order to increase borrowers’ repayment capability, local governments should offer the borrowers preferential policies including granting them rights for developing other more profitable urban infrastructure projects, offering preference for land use, paying loan interest with government funds, providing security, and offering preferential treatment for issuing corporate bonds and assisting with financing them through stock markets.

The principle shareholder should provide security for the loan borrower. Given this condition, the borrower is also the owner of the UEI project, but the stakeholder who owns the most shares should provide security for the borrower. Also, state-owned corporations involved in urban infrastructure development (which can be supported by local government) could be eligible warrantors or loan guarantors.

Local governments can grant the borrowers rights to develop other profitable projects and require them to use the profits gained from these projects to repay loans.

The government should open up the packaging of loans to UEI projects combined with other urban development projects. For instance, an urban wastewater treatment 　project can be combined with an urban water supply project to apply for packaged loans from commercial banks. Repayment can be ensured by profits gained from both projects.

In order to increase the repayment capacity of UEI projects, several mechanisms including subsidizing interest payments, issuing corporate bonds, transforming bonds into shares, and inviting banks to act as financial advisors to the borrowers are available.

·　According to the trend of financial policy reform, corporate bonds will play a more important role. The government should actively make use of corporate bonds as a tool for financing UEI projects.

·　The Government of China has had clear policies on using trust investments to finance environmental projects. It is necessary to study the feasibility of establishing a “Public Environmental Trust Fund.” The method of raising money through the Social Security Fund can be used as a good reference. In order to establish the environmental trust fund, the Government, enterprises and urban citizens could invest jointly. The foundation of such a fund should get approval from the State Environmental Protection Administration (SEPA), and it should act as a supervisor of the fund. The Public Environmental Trust Fund should be established by means of trust investments, and should be managed and operated by qualified trust investment agencies.

·　There are several successful cases in which multi-lateral authorized bank loans are used for financing UEI projects. It is necessary to conduct further study on the development of relevant financial policies and successful experiences.

In the context of China’s financial institutions and policies, the financial tools mentioned above will certainly play more important roles in project financing. However, their application to UEI projects has the following limitations:

·　Corporate bonds, by their nature, conflict with UEI which is a public good. Since the Budget Law prohibits the issuance of municipal bonds, corporate bonds are used to finance UEI projects instead. Although enterprises issuing corporate bonds nominally assume the responsibilities for repayment and bear the risks； in practice, however, local governments offer them various types of support and subsidies. This kind of bond is essentially not a corporate bond but a kind of municipal bond, which is commonly used in other countries for financing public works. Presently in China, the examination and approval process for issuing corporate bonds is very strict. The issuance cost is often high, and the total volume of corporate bonds is still limited, and thus they cannot satisfy the large financing demands of UEI projects.

·　Trust investment funds are widely used in China, however, this is not the financing channel specialized for UEI projects. In addition, trust investment agencies do not play a major role in China’s financial sector. Neither their scope nor their capacities can make them a major financing channel for UEI projects.

·　For multi-lateral authorized loans, although the depositary banks do not bear responsibility for repayment, public loans are still heavily dependent on the credit standing of banks. Therefore, potential social risks exist.

·　Bank loans play a major role in China’s financial sector and are eligible to become a major channel for financing UEI projects. From a macro-perspective, however, there are still some problems. On one hand, financial risks are too concentrated in banks. On the other hand, in view of promoting direct financing, the proportion of financing through bank loans should therefore be reduced gradually, and then private investment will increase by providing more channels for direct financing. Therefore, from the perspective of future development of China’s financial sector, i.e., reducing banks’ risks and increasing direct investment, bank loans cannot be depended on excessively for financing UEI projects.

Issuing municipal bonds is an ordinary method for financing UEI in developed countries. There is a growing feasibility of issuing municipal bonds in China.

For municipal bonds, the debtor is the local government or state-owned enterprises (such as a wastewater treatment plant, water supply company, or urban infrastructure construction and management company) that issue bonds open to the capital markets. Funds raised by municipal bonds are usually used for the construction of urban infrastructure or public utilities, including roads, bridges, water supply, wastewater treatment, solid waste disposal and other public facilities. UEI is one of the components of overall urban infrastructure. With the support of local governments, the repayment of municipal bonds can be guaranteed by several sources. Also, profits gained from other development projects can be used to compensate for UEI projects. These characteristics make municipal bonds a promising tool for financing UEI projects. Issuing municipal bonds is a common approach in developed countries for financing UEI projects.

·　A growing feasibility in China to issue municipal bonds

Based on the current trend, there is a growing notion that local governments will be given permission to issue municipal bonds.

The essence of municipal bonds is government debt. Issuing municipal bonds will help to not only establish a stable channel for financing UEI projects but also to adjust the structure of government debt, which helps to share the central government’s debts with local governments. This is conducive to reducing the amount of treasury bonds and their risks, since the financial burden can be partly shared by local governments. The central government can provide the necessary support to local governments, including transferring money from the central government to relevant local governments and offering other preferential policies.

Municipal bonds are consistent with the nature of UEI as a public good. Municipal bonds are different from other commercial bonds. Since the objective of municipal bonds is to provide financing for public facilities, their issuance and trading are often tax-free. The application of municipal bonds is often limited to pure public goods or quasi-public goods that have difficulty or are incapable of recovering their costs over a short term. UEI is typically one of these projects.

Issuing municipal bonds is useful for enabling local governments to fulfill their responsibilities, one of the major ones being to provide UEI service. Compared to other financing mechanisms, municipal bonds can better help realize governmental objectives, relate governmental responsibilities with their credibility, and strike a balance between their responsibilities and resources availability (in terms of government budget plus their financing capacity).

Municipal bonds are conducive to directly addressing the financing requirements for construction of UEI, thus reducing financing costs. Compared with other financing mechanisms, there are two reasons for its lower financing costs. On one hand, the issuer of municipal bonds is usually a municipal government or juridical person of a project who is guaranteed by the municipal government. The credibility of the issuer or the warrantor determines lower risks in issuing municipal bonds. In addition, tax preference also helps to lower the costs for interest payment. On the other hand, since the municipal bonds are issued to serve the general objectives of urban construction and development, their scale of financing is usually much larger than single project financing. Under the same conditions, the larger the scale, the lower the cost for financing.

The funding conditions and financial environment necessary for issuing municipal bonds now exist. By the end of 2002, China’s national savings reached about 1 trillion RMB, equivalent to 1.02 times the country’s GDP. From 1998 to 2002, the national savings showed an increase of 21% annually. The swift increase of national savings represents the rapid growth in the national economy on one hand, but has limited the channels available for private investment on the other hand. Under this circumstance, sufficient funds available for private investment provide a solid basis for direct financing through municipal bonds. In addition, China has established complete financial institutions under the market economy with a financial market system and a corresponding supervision and management system, which provide the necessary conditions for issuing municipal bonds.

The risks associated with issuing municipal bonds can be effectively controlled, but this depends on a number of aspects, first of which is the good credibility of the issuer. Municipal bonds are issued or guaranteed by a municipal government that has stable revenues from taxes and assumes the responsibility of providing public facilities. This relationship plays an important role in managing risk. Second, the use of municipal bonds usually has low risks. Municipal bonds, different from other ordinary commercial bonds that usually have no restrictions on their usage, can only be used for investment in urban infrastructure. Generally speaking, if UEI facilities can be operated and managed properly, their operating risks are far lower than other commercial projects. Third, the issuer of municipal bonds also assumes the responsibility for their management. Sustaining financial stability and reducing financial risks are important responsibilities of municipal government. In this context, a municipal government, as both the issuer and municipal governor, should bear the financial risks not only in issuing the bonds but also in their governance. Therefore, the risk control of municipal bonds pertains to not just bond risk control but social financial risk control as well, and acts as a “ruler” to indicate social financial risks. The municipal government will by all means pay great attention to controlling and balancing the risks of issuing municipal bonds.

Treasury bond investment has played a significant role in accelerating the construction of UEI and boosting economic growth in China. The Government should further strengthen treasury bond investments in environmental projects and limit their application. The use of this type of bond should be concentrated more on priority projects. It is necessary to increase the variety of treasury bonds and to promote market-based mechanisms for their issuance and management.

From 1998 to 2002, the central government issued a total of 660 billion RMB in long-term treasury bonds, of which 65 billion RMB was invested in the construction of 967 UEI projects, covering 95% of cities and some counties in western China. Treasury bonds not only accelerated the construction of UEI in some cities in China but also played a positive role in boosting economic growth. During 1998 to 2002, the accumulated total of long-term treasury bonds directly produced about 2,500 billion RMB in investment from local governments, relevant departments, enterprises, and bank loans. One study showed that projects funded by treasury bonds led to a 2% increase of GDP in 1999.

There are also problems with the use of treasury bonds. For instance, the required counterpart funding to be provided by local governments was not put in place. In addition, the application of treasury bonds is too broad and the supervision of projects funded by treasury bonds is not effective enough. In addition to risk management concerns also found in other developed countries, treasury bond issuance has another two problems seen particularly in China. The first is that local governments ask for a “lease” from the central government, or they attempt to get approval of projects from the central government and make them into the object of treasury bond investment. The second problem is that the issuance of treasury bonds relies too much on administrative tools that do not take advantage of market mechanisms for effective resource allocation. Therefore, the reform of issuing treasury bonds is urgently needed.

The use of treasury bonds should be focused on priority projects in major regions, and treasury bond investments in environmental projects should be further strengthened. In planning, priority should be given to major environmental protection projects in specific regions proposed in the Tenth-Five Year Plan for Environmental Protection. Particularly, the Government should increase the proportion of treasury bond investment in some poor regions, where the financing capacity is usually low and counterpart funding cannot be ensured by local governments.

Market mechanisms should be employed for issuing treasury bonds. Two reforms could be considered. Firstly, to diversify the treasury bonds. Special treasury bonds for the construction of UEI could be an option. In issuing the special treasury bonds, the central government should clearly define the issuer and the borrower, as well as the responsibilities and rights of the central government and the local governments. The issuing of special treasury bonds should make use of market mechanisms. Referring to practices in other countries, part of the treasury bonds can be replaced gradually by municipal bonds. Secondly, to make full use of market mechanisms for the issuance and management of treasury bonds. A trusteeship experiment for treasury bond management should be conducted. In this experiment, it is necessary to select eligible agencies as investors on behalf of the Government. Detailed management procedures should be specified. Based on the experiences of in industrial investment the market mechanisms could be applied to the issuance and use of treasury bonds in order to increase their efficiency and promote their sound development.

4. Other Key Policy Issues

4.1 Tariff policy and tariff rates for water supply, wastewater treatment plants, and solid waste collection

Sewage and garbage charging is the necessary condition of realizing environmental infrastructure construction and market-oriented operation. Granted by the State Council, on June 4, 1997, the Ministry of Finance, the State Committee of Planning, the Ministry of Construction and the State Administration of Environment Protection jointly issued Notice of Concerning Questions for Cities along with Huaihe River Basin Trial Implementation of Sewage Treatment Charges, specifically regulating the collection, management and usage of the sewage treatment charges of cities along with Huaihe River Basin. On May, 1999, the State Committee of Planning, the Ministry of Construction and the State Administration of Environment Protection jointly issued Notice of Strengthening Collection of Sewage Treatment Charges, Setting up Sound Operation Mechanism of Urban Sewage Discharge and Centralized Treatment, regulating the approving principle and jurisdiction of sewage treatment charging criteria. Since 2000, the relevant departments, such as the State Council and the State Committee of Planning issued Notice of the State Council for Strengthening Urban Water Supply, Saving and Pollution Control（[2000]No.36）, Notice of Further Promoting Price Reform of Urban Water Supply（[2002]No.515）and Opinion of Promoting Industrialization of Urban Sewage and Garbage Treatment successfully, further stating that “All the cities with county level cities should charge sewage treatment fees as soon as possible adhering to relative regulations, when cities adjust the prices of urban water supply and sewage treatment fees, the charging standards of sewage treatment fees should be given priority to adjust to the levels of break even and slight profit to meet the needs of sewage treatment construction and operation. ”The issue of such notices and opinions has created the conditions for market-oriented operation of urban sewage treatment.

Compared with charging policies of sewage, charging policies of garbage were formulated later. On June 7, 2002, the State Committee of Planning, the Ministry of Finance, the Ministry of Construction and the State Administration of Environment Protection jointly issued Notice of Implementation of Charging System for Urban Living Garbage Treatment and Promotion of Industrialization of Garbage Treatment determinated living garbage treatment fees as operation service fees, and the charging standards should be carried out according to the principle of compensating garbage collecting, transporting and treating costs and obtaining reasonable profit, the fees should be charged step by step depending on different situation. Opinion of Promoting Industrialization of Urban Sewage and Garbage Treatment（[2002]No. 1591）further definitudes: “The cities that has built sewage and garbage treatment facilities should start to charge at once, the other cities should begin to charge at the end of 2003.” “The charging standards should be carried out according to the principle of achieving break even and slight profit, and be implemented step by step. The corporate and individual, including those using self-supply water resource, which discharge sewage and produce garbage in the range of cities, should pay the fees of sewage and garbage treatment. ”

Table 12 Situation of wastewater charge collection in 2002

The rate of collection <30% 30%-50% 50%-70% 70%-90% >90% Number of cities 8 16 56 69 40 Percentage 7.5% 14.6% 26.4% 32.6% 18.9% Number of province 1 15 12 2 Percentage 3.3% 50% 40% 6.7%

Source: Tsinghua University 2003 Table 13 Situation of garbage charge collection in 2002

The rate of collection <10% 10%-30% 30%-50% 50%-70% 70%-90% >90% Number of cities 8 16 35 32 33 2 Percentage 6.3% 12.7% 27.7% 25.4% 26.2% 1.6% The rate of collection <30% 30%-60% 70%-90% >90% Number of province 9 9 1 1 Percentage 45% 45% 0.5% 0.5%

Source: Tsinghua University 2003. Table 14 Standard of urban wastewater charge in 2002

Standard <0.3 Yuan / ton 0.30-0.50 Yuan / ton 0.50-0.70 Yuan / ton >0.70 Yuan / ton Number of cities 112 80 17 10 Percentage 51.1% 36.5% 7.8% 4.6%

Source: Tsinghua University 2003.

4.2 Re-structuring of municipal asset ownership

Urban Development Investment Corporations can own assets, borrow for infrastructure financing, or guarantee the borrowing of other parties. In China, there are several cities like Shenzhen, Shenyang are on the process of re-structuring of municipal asset ownership.

Box 5 SHENZHEN: Cooperation between Shenzhen Water Group (SZWG) and Changxing County Government, Zhejiang Province

In September 2003, the contract about the cooperation of Changxing County water supply and sewage treatment was subscribed between SZWG and Changxing County government, Zhejiang Province. It is the first integrated urban water supply and waste water project with social capital. The total investment of this cooperation project is RMB 160 million. A new water supply and drainage joint venture corporation was organized to serve urban water supply and waste water treatment for Changxing County. SZWG possesses 70% share ownership of this new joint venture corporation with cash and Changxing Qingyuan Investment Assets Management Center occupies 30% share ownership with assets. The joint venture corporation acquired the concession contract of urban water supply and waste water treatment for 50 years.

SZWG has made a great progress in optimization of ownership structure since the assigned transfer agreement with 45% share ownership. SZWG has strengthened and increased its capacity for purchasing more share ownership with new joined capital. The cooperation project with Changxing County will follow the cooperation model between SZWG and Jiaozuo City, Henan Province. SZWG possesses predominant 70% share ownership of the joint venture corporation which is managed by Changxing. It is an integrated collaboration with Urban Tap Water General Corporation instead of individual water plant or waste water treatment plant. The cooperation between SZWG and Changxing County Government includes not only the urban water supply but also the urban waste water treatment.

The integrated transferring share ownership model is also applied in other cities. The recent cooperation between Beijing Urban Drainage Group and Lianyungang also adopted the integrated transferring share ownership approach. It is reported that the process of cooperation between Thames Water Group and Shanghai Water Bureau has entered the overall investigation phase after they subscribed the memo about the integrated joint venture of Shanghai North Tap Water Ltd. It comes to an agreement that 50% share ownership of Shanghai North Tap Water Ltd. will be transferred in early 2004. The integrated transferring share ownership model has been identified in water industry and it will be the mainstream for financing and developing water industry in medium cities. But in megapolis, such as Beijing, Shanghai, the integrated transferring approach will result in few big water corporations could enter the market because of the tremendous capital.

(Source: H2O China 2004)

Box 6 SHENYANG: 50% shares ownership of Shenyang Tap Water General Company for sell

Shenyang Tap Water General Company, the biggest urban water supply enterprise in Northeast China, was established in 1915, including 8 regional operation corporations, a large-scale engineering corporation and 21 directly under sub-units. 9 underling water supply corporations are serving most of Shenyang.

The reform of Shengyang Tap Water General Company has been one of key projects of Utilities department of Shengyang Municipal Construction Committee, which are proposed for calling various investments from the internet. Shenyang Tap Water General Company plans to utilize its total asset as cooperation base after assessment. The Chinese party will become shareholder with 50% asset total after assessment and the counterpart will buy the remained 50% share with cash. The investors possess the follow rights and interests: assets and concession management right of water resource, water plant and the whole water production system； assets and concession serving management right of pipe networks, secondary pumped water supply instruments and sales serving system； and assets and concession production management right of North Waste Water Treatment Plant.

Shengyang Tap Water General Company will process institutional reform for 11 underlying corporations in terms of requirement of Shengyang Economic and Trade Committee. So far, most of corporations has been reforms by incorporation or cancelled. It provides a good condition for next reforming strategy of integrating capital.

(Source: H2O China 2004)

5. Collusion and policy recommendations: A strategy for designing competitive municipal credit market

(1) Strengthening of government investment scale, exertion of major investment body role and special role of guidance and security

The national government should transfer the grant to the local government and strengthen the local autonomy from the aspect of local government tax revenue for promoting the investment at the local level, as well as secure well development of local capital market. Establishment of the special fund in UEI sector is an effective method like the Clean Water State Revolving Fund of US. But the investor from capital market does not consider competition with government credit project with low interest. The willingness of their investment may be lost. So the subside should be targeted subside fro coverage expansion, tariff transition, consumption and wastewater treatment and municipal solid waste disposal. The objective and process of subside should be transparency and let public know. Public funding needs to shift from input based to output based financing. It is important to develop the new function of fully utilization of government budget while PSP projects are increasing. It is necessary to conduct the input and output analysis of project thoroughly. It can raise the operation possibility of project at the commercial base.

(2) Make full use of multiple channels of commercial financing tools, such as bank loans, bonds, trust investment funds, and multi-lateral authorized bank loans, to raise funds from the market by improving relevant policies.

Among the existing tools for multiple channel commercial financing, bank credits and corporate bonds are the two most important, and should be fully employed through the reform of relevant policies.

Bank loans play a key role in China’s financial system, accounting for 90% of the total financing volume. The Government should pave the road to using bank credits for financing the construction of UEI. In addition, governmental policies of supporting environmental protection should be integrated with the requirements of risk management for bank credits. This would include:

·　implementing a pilot system which allows levy authority for environmental projects to be used as a mortgage for loans；

·　to integrate environmental projects, such as wastewater treatment and municipal solid waste disposal facilities, into the master plan for the construction of urban infrastructure (taking advantage of combined bank credits), select qualified borrowers, and adopt the system of integrated loans for urban development；

·　to implement the system of initial fund requirement for environmental projects and to attract funds from commercial banks in line with the national reform of the financial system and on the basis of promoting the system of project ownership, attracting private investment and promoting concession transfer；

·　to properly extend the purview of bank branches in issuing credits；

·　to include more environmental projects into comprehensive urban development programs financed by the National Development Bank； and

·　to make full use of governmental investment as a facilitator in the financing of commercial banks. For example, combining governmental fiscal funds with commercial bank credits in ways such as paying interest for bank loans and subsidizing the initial funds required for environmental projects can increase the financing capability of environmental projects.

The issuance of corporate bonds complies with the general direction of China’s financial reforms. In the process of revising the Ordinance for Corporate Bonds, the government should design the necessary policies to facilitate corporate bonds to be used for financing the construction of urban infrastructure, including UEI. These policies include:

·　incorporating environmental projects into the bond issuance plan for comprehensive urban development；

·　selecting urban construction enterprises with high credit and strong repayment capability as borrowers according to the requirements of urban construction；

·　granting the borrower with the right to develop other urban infrastructure projects (non-environmental projects), allowing them to use profits gained from non-environmental projects as a repayment source for loans borrowed for environmental projects, and providing favorable land-use policies for UEI projects；

·　by using local governmental revenues beyond the fiscal budget, subsidizing the bond interest when the corporate bond interest rate is higher than that of the treasury bonds； and

·　facilitating the circulation of corporate bonds used for the construction of urban infrastructure.

(3) While making full use of various commercial financing channels to raise funds from the market, the Government of China should seriously consider the introduction of municipal bonds, which would serve as a new and important channel for financing UEI.

Issuing municipal bonds is important for both the reform of China’s financial system and the institutional reform of investment and financing. It will not only influence the re-allocation of financial power and responsibilities between the central government and local governments but also require revision of relevant laws and adjustment of policies. In addition, it is necessary to establish a system for evaluating the credit of local governments, as well as a supervision system and monitoring mechanisms. The Task Force therefore recommends that the State Council should require the relevant departments to study and design an implementation scheme for issuing municipal bonds. The following points should be taken into account:

·　Pilot projects on issuing municipal bonds should be conducted in some selected major cities in China’s developed regions. In issuing municipal bonds, the volume of issuance should be strictly controlled, and the types of projects which use municipal bonds should be limited. For example, the construction of facilities for the 2008 Olympic Games in Beijing and for the Horticulture Expo in Shanghai could be good candidates for experimenting with the issuance of municipal bonds.

·　Supplementary policies for issuing municipal bonds should be developed, starting with creating tax incentives, including tax reduction and exemption policies, to attract investment from financial organizations and private investors. Second, the market of municipal bonds should be opened up to commercial banks, and policy support should be provided for commercial banks to invest in municipal bonds. Third, municipal bonds should be made tradable in and beyond nationwide bond market, so that they should be circulated more broadly and their risks reduced. Fourth, effective issuance and assurance mechanisms should be established for municipal bonds. It is important to promote the issue of municipal bonds through the market and properly select issuers and sellers as well as the method of issuance. In addition, it is necessary to construct a rational guarantee structure and implement guarantors’ responsibilities and investors’ liabilities for bearing the risks.

·　Mechanisms to ensure preferential use of municipal bonds should be developed to UEI construction projects. In order to prevent large amounts of funds raised by municipal bonds from flowing into more profitable sectors such as transportation and water supply, and therefore forcing less profitable environmental projects to continue facing the bottleneck of financing problems, it is necessary to integrate government intervention with market mechanisms to guarantee the funds needed for UEI construction. For example, the government could create a special environmental budget for buying bonds and offer preferential policies of guarantee.

·　A draft amendment bill to the Budget Law concerning the provision that “local governments shall not issue local government bonds” needs to be proposed to the National People’s Congress after it is first approved by the State Council.

(4) It is recommended to put forward policies and techniques to mobilize China’s large base of personal savings for financing new infrastructure projects through the domestic capital markets. Long-term saving pools and institutional investors is the key element to issue the municipal bond. The establishment of long-term capital market including pension funds and insurance funds is important.

(5) The main objective of foreign direct investment is to introduce the advanced management experiences, improve system efficiency, and reduce the cost. Some Asian countries experienced the FOREX rate risk while accessing the foreign capital market. But China is in the tendency of raising valuation of RMB. So FOREX risk is not big issue in there, On the other hand, low interest of loan from overseas is attractive to the domestic enterprises.

(6) PPP project in UEI is increasing. It is necessary to encourage strong domestic banking and domestic companies to take a leading role in the PPP based initiatives

(7) The important role of International Development Organisations and ODA for promoting PPP in UEI: From a series of trials by the above-mentioned organisation, the support for institutional design and policy decision at the macro level in UEI field administrative and fiscal reform, policy decision at the micro level and the capacity building for local governments in the implementation stage for the targeted country and region is the centre of future assistance activities. Enforcement of maintenance of project finance environment, information on international experience, consultation and advice for project formation, implementation of seminars or training courses, a concrete pilot project or a model business for shifting know-how are effective support methods. Donor agencies may also help governments in contract management and negotiations, as some governments may not have the expertise to match their private sector counterparts with international backing. The fund from International Development Organisations and ODA can act as the seed money for revolving fund for encouraging the social investment, also can play the role of guarantee (Chang et al. 2004).

Reference

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[1] In brief, government affiliated non-profit organizations refers to a category of public services operated according to governmental mechanisms, whose finance is provided by the government, and whose human resources are managed by the government.

[2] The enterprises referred to here include those established on the basis of reformed government-affiliated non-profit organizations (e.g., state-owned or state holding enterprises) and other types of enterprises.

[3] In China, economic entities other than the public sector include state-owned enterprises, collective enterprises, private enterprises, foreign-funded enterprises, and joint ventures, etc., whose content exceeds the private sector, as frequently mentioned in the global forum.

[4] The term “marketization” derives from the process of a planned economy to a market-based economy in specific circumstances in China. This includes the “utilization of economic instruments based on market mechanisms,” the “corporatizaiton/privatization of public and or government run sectors”,“introduction of profit-oriented capitalistic management” and so forth.

[5] The enterprises referred to herewith include those established on the basis of reformed government affiliated non-profit organizations (e.g.state-owned or state-holding enterprises) and other types of enterprise.