In August 2025, the General Office of the State Council forwarded the Ministry of Finance's "Guiding Opinions on Standardizing the Construction and Operation of Government Social Capital Cooperation Stock Projects" (State Council Letter [2025] No. 84, hereinafter referred to as "Document No. 84"), which clearly proposes to adhere to problem orientation, implement classified policies, reduce costs and increase efficiency, and standardize the construction and operation of PPP stock projects. The document aims to optimize the financing environment, clarify the boundaries of rights and responsibilities, solve various difficulties in the operation and maintenance period of PPP projects, and stabilize the confidence of social capital investment.

However, the implementation of Document No. 84 at the county and district levels is not ideal.

According to data from Mingshu Technology Company, the investment scale of existing PPP projects at the county and district levels accounts for 42.41% of the total investment scale, and the quantity accounts for 68.62% of the overall proportion. Hong Zhiqiang, Deputy General Manager of Mingshu Data Technology, analyzed that there are many county-level projects, but the individual scale is small, mainly involving several industries such as municipal engineering/urban comprehensive development/transportation/ecological construction and environmental protection, and most of them require government financial support to be implemented.

In December 2025, a person in charge of the PPP department at the county and district levels told the Economic Observer that county and district level projects are facing multiple difficulties such as difficulty in financing and interest rate cuts, lagging fiscal payments, fluctuating tax policies, and lack of coordination mechanisms. The policy dividends of Document No. 84 have not been effectively transmitted to the grassroots level.

Although these issues also exist at the city level and above, they are more prominent at the county and district level.

After the issuance of Document No. 84, the person attempted to communicate with social capital and financial institutions to reduce the yield and loan interest rate, but was unsuccessful. The person found that it is difficult to obtain incremental funds at the county and district levels; County level financial institutions also have no decision-making power; Social capital has a high degree of cooperation, but it has no effect.

A social capital management team told the Economic Observer that PPP projects involve the government, social capital, and banks, but there is a lack of effective coordination mechanisms at the grassroots level, resulting in a "triangular stalemate" where "the government has no money to pay, social capital has no money to bear, and banks are unwilling to let go". As an intermediary, social capital should not only be held accountable for bank defaults, but also understand the government's financial difficulties, falling into a situation of being caught off both sides.

The person in charge of the PPP department suggested that the implementation of Document No. 84 cannot be separated from the collaborative support of financial, tax and other departments. It is suggested that the Ministry of Finance, together with the State Administration of Financial Supervision, the People's Bank of China, the State Administration of Taxation and other departments, should formulate supporting implementation rules as soon as possible, clarify operational standards and division of responsibilities.

The person suggested that firstly, the specific process of financing optimization should be clarified, and banks should not include project companies and shareholders in the "attention list" due to adjusting loan interest rates, simplifying the approval level for interest rate adjustments; Secondly, clarify the tax recognition standards for PPP projects, allowing for the issuance of availability payment invoices at a tax rate of 6% based on the characteristics of the project company as a non construction enterprise, to avoid arbitrary adjustments in tax rates; The third is to establish a guarantee mechanism for financial payments, requiring counties and districts to include PPP project payments in their annual budgets and alleviate grassroots financial pressure through multiple channels.

Triangle Stalemate

Document No. 84 proposes to encourage and support social capital, financial institutions, government and other parties to communicate and mutually benefit, scientifically optimize the implementation content, cooperation period, financing interest rate, income indicators and other elements of PPP stock projects, jointly reduce project operating costs, improve the efficiency of public service supply, and achieve sustained and stable operation. Encourage financial institutions to negotiate with social capital on an equal footing, adopt methods including but not limited to adjusting repayment plans, reducing interest rates, extending periods, etc., reasonably optimize financing structures, and support the sustained and stable operation of projects. ?

However, there are certain difficulties in practical operation. The above-mentioned social capital management team stated that high financing costs are a common pain point for existing PPP projects. On the 84th, it was explicitly supported that the government, social capital, and banks should negotiate and optimize financing conditions, but there were many obstacles in the grassroots negotiation process.

For example, the PPP projects in its location are all project loans processed through a commercial bank in the south. During the period of interest rate decline, PPP projects actively applied for interest rate cuts but were explicitly rejected by banks. The reason given by the bank is that the interest rate cut is an important modification of the loan contract terms, and the shareholders and guarantors of the project company will be included in the bank system's "watch list", which will directly affect the subsequent financing credit of related enterprises.

The head of the PPP department mentioned above found in practical operation that banks, as profit-making institutions, prioritize their own risks and respond negatively to the policy guidance of Document No. 84. Although the government has the willingness to promote it, the county and district finances lack funds and resources, making it difficult to take the lead in coordinating with banks. Although the municipal finance department has organized symposiums, it cannot change the internal management regulations of banks.

The person in charge said that according to the strict hierarchical approval system implemented within the banking system, the city level branches do not have the final decision-making power and need to report to the provincial bank and even the head office. However, the higher-level provincial branches and even the head office do not attach enough importance to Document No. 84, which also leads to a lack of motivation for grassroots bank managers to promote policy implementation.

In practice, the person in charge found that the progress of coordinating local financial institutions to reduce financing costs has been very smooth, but other financial institutions have made almost no progress.

The person in charge of the PPP mentioned above said, "When the municipal bank president reports a rate cut, the provincial bank's first consideration is the impact on profits, and it will not violate internal regulations just because of a policy document." Internally, the bank regards the modification of loan terms as a risk event and is concerned about being held accountable by regulators. Therefore, it adopts a "one size fits all" refusal attitude towards PPP project interest rate reduction and extension applications. The person in charge said that some banks consider Document No. 84 as a tool to "urge the government to pay" rather than a basis for optimizing financing conditions.

Xue Qitang, a partner at Huicheng Law Firm, has been negotiating on existing PPP projects recently, with clients including local governments and social capital. The core of the negotiation is to reduce the rate of return and bank loan interest rates. He said that the return rate of a large number of existing PPP projects was around 6%, and the loan interest rate of financial institutions was around 4.9%. But in recent years, interest rates have continued to decline, which is also a reason for local governments to require financial institutions to lower loan interest rates, so as to reduce the expenses of PPP project companies.

Huang Huazhen, Senior Partner of Dacheng Law Firm, believes that the current difficulties faced by existing PPP projects are mainly due to three reasons: firstly, different interests and demands from all parties; Secondly, there is a lack of more detailed policy basis; Thirdly, there is a lack of effective execution procedures.

She further explained that firstly, the interests and demands of all parties are different, and investors naturally do not want to reduce returns, but the government has a demand to reduce costs; Secondly, there is a lack of more detailed policy basis. Currently, there are many Chinese funded institutions involved in PPP projects, and decision-making by all parties generally requires a basis. However, there are currently no more detailed rules except for Document No. 84, and the amount and method of reduction are not clear; Thirdly, there is a lack of effective execution procedures. There is currently no basis for who will take the lead in negotiations, how to negotiate, and according to what procedures to negotiate.

Behind the difficulty in implementing policies

The difficulty in implementing Document No. 84 in counties and districts is not due to a single factor, but multiple factors.

Some PPP industry insiders believe that Document No. 84 was formulated under the leadership of the Ministry of Finance, but did not collaborate with key departments such as the People's Bank of China, the State Administration of Financial Regulation, and the State Administration of Taxation, resulting in a lack of policy implementation. There are strict credit management regulations within the banking system. Without mandatory requirements from financial regulatory authorities, grassroots banks will not actively break through existing rules and respond to policy documents led by the Ministry of Finance. Document No. 84 only has principle requirements, without specific operational rules. The PPP officials mentioned above have reported that the document does not specify the operational procedures for financing interest rate cuts, the guarantee mechanism for fiscal payments, and the specific standards for tax recognition. County and district departments have no basis for implementation. For example, key issues such as which levels of approval within the bank are required for financing interest rate cuts, and how to avoid the impact of adjustment terms on social capital credit ratings, have not been mentioned, resulting in sufficient reasons for banks to refuse to cooperate.

The PPP responsible person mentioned above stated, "More importantly, there was insufficient prediction of the current situation of tight fiscal liquidity and strict bank level management in counties and districts before the policy was introduced. If the No. 84 document could be jointly issued with the State Administration of Financial Regulation and the State Administration of Taxation to clarify the responsibilities of each department, grassroots implementation would be much smoother." The current reality is that county and district governments are directly responsible for PPP projects, but grassroots finance is currently facing the dual pressure of "income decline and expenditure rigidity", and is unable to guarantee project payments and coordinated progress.

In addition to insufficient financial strength, the coordination ability of grassroots governments is also seriously lacking. The person in charge believes that PPP projects involve multiple departments such as finance, taxation, housing and construction, and transportation, and the county and district governments lack cross departmental and cross level coordination authority.

For example, tax policy adjustments require clarification from tax departments at or above the provincial level, and financing interest rate cuts require approval from the head office of banks, which are beyond the coordination scope of county and district governments. Although municipal departments have certain powers, they lack effective incentive and restraint mechanisms, making it difficult to promote vertical management departments such as banks and taxation to cooperate with policy implementation.

Suggestion

Huang Huazhen told the Economic Observer that before clearer rules are introduced, it is recommended that localities seek self-help solutions.

One is to seek assistance from professional institutions, such as some dispute resolution agencies that provide non litigation dispute resolution mechanisms such as dispute facilitation and negotiation. Experts in finance, banking, taxation, engineering, and other fields provide professional analysis to solve practical problems such as difficulty in making decisions, large differences, etc; Secondly, it is suggested that local governments can issue detailed rules without violating central policies; Thirdly, it is suggested to take certain creative measures within the scope of laws and regulations. For example, in a project to resolve the issue of investors withdrawing from a local government special bond, a certain place flexibly applied relevant regulations on state-owned assets to assist relevant investors in withdrawing.

Huang Huazhen suggested that PPP parties should "cross the river by feeling the stones", try first, and summarize experience from practice. As long as they do not violate the provisions of laws and regulations, as long as they comply with the spirit of Document No. 84, as long as they follow the principles of marketization and rule of law, and as long as they comply with the relevant documents for resolving government debt, they can summarize experience while doing.

Some PPP industry professionals mentioned above have also put forward some suggestions. For example, including PPP projects in the scope of special bond support, establishing PPP special bonds to provide financial support for financing replacement, cost subsidies, and other needs of existing projects. If special bonds can be established for PPP projects like land storage bonds, many financing problems can be easily solved.

In Document No. 84, it is proposed to strengthen the management of local government debt. Local governments that raise construction funds through the issuance of government bonds shall not exceed the statutory limit of borrowing to ensure financial security and sustainability

However, some industry insiders hope to have new special bond quotas to solve the problems of existing PPP projects. Faced with the difficulties of grassroots finance, it is difficult to allocate existing funds. It is best to have new, incremental, and dedicated funds.