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Article

Policy Perspective on Governmental Implicit Debt Risks of Urban Rail Transit PPP Projects in China: A Grounded Theory Approach

by
Yajing Zhang
1,
Weijian Jin
1,* and
Jingfeng Yuan
2
1
School of Economics and Management, Nanjing Institute of Technology, Nanjing 211167, China
2
College of Civil Engineering, Southeast University, Nanjing 211189, China
*
Author to whom correspondence should be addressed.
Sustainability 2023, 15(19), 14078; https://doi.org/10.3390/su151914078
Submission received: 31 July 2023 / Revised: 19 September 2023 / Accepted: 21 September 2023 / Published: 22 September 2023
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Abstract

:
Public–private partnership (PPP) projects have the features of extended investment cycles, diminished returns, and high demand for technology. Inadequate utilization of these projects may result in an accumulation of new implicit debt for the government. Consequently, it becomes imperative for the government to manage and mitigate implicit debt risks associated with urban rail transit PPP projects, which is a crucial prerequisite for ensuring the progression of such projects and the unhindered functioning of the financial system. The objective of this study is to investigate the factors that influence government implicit debt risks in urban rail transit PPP projects from the perspective of policy. This study employs the grounded theory method to develop a comprehensive framework model that identifies the influencing factors of government implicit debt risk in urban rail transit public–private partnership (PPP) projects. The contributions of this study are twofold: (1) it highlights the role of policy as a significant determinant of implicit debt risks of urban rail PPP projects, which contain governmental subsidies, external environmental risk sharing, and supporting measures. Specifically, government subsidies directly contribute to the government’s implicit expenses, thereby impacting the level of implicit debt risks associated with urban rail transit PPP projects. Supporting measures exert an indirect influence on the implicit debt risks of the government, thereby imposing a significant burden on local fiscal expenditure. External environmental risk sharing, as an external factor, leads to an increase in fiscal expenditure due to the government’s social responsibility; and (2) it provides a qualitative method that examines the government implicit risk factors associated with urban rail trait PPP projects based on grounded theory. The model that examines the influencing factors of government implicit debt risk in urban rail transit PPP projects adopts a policy perspective, which can inform policymakers on a heretofore unexplored adverse effect of guarantee policy.

1. Introduction

China is undergoing a stage of rapid economic and social development. Transportation infrastructure plays a vital role in supporting and guaranteeing economic development and social progress. Therefore, the government has vigorously developed transportation infrastructure construction [1]. In particular, the government has attached great importance to planning and investment in the urban rail transit industry. Initial data indicates that until 31 December 2022, a total of 317 urban rail transit lines have been completed and are officially operational in 55 cities across China, covering a substantial operating distance of 10,078 km [2]. The implementation of the urban rail transit project requires land acquisition and demolition, with a substantial magnitude of construction. Additionally, the engineering cost per unit mileage is considerably high, resulting in a substantial investment for the project. Furthermore, the investment and financing approaches in the majority of cities present a relatively limited diversity, primarily relying on governmental financial platforms to secure bank loans. The asset–liability ratio of urban rail transit projects is observed to be high, as indicated in Table 1. In the context of the “New Normal” economy, the public–private partnership (PPP) model has gained significant popularity in infrastructure initiatives, particularly in urban rail transit construction. This is primarily due to its ability to address government financing gaps and mitigate risks associated with local government debt [3].
Policy plays a crucial role in promoting urban rail transit PPP project development. The government can improve the efficiency of transportation infrastructure by increasing fiscal expenditures on urban rail transit PPP projects investment [4]. However, the implementation of China’s guarantee policy on urban rail transit PPP projects is currently under severe pressure. Specifically, the debt problem accumulated from urban rail transit PPP projects has made subsequent funding challenging to the governments [5]. The term “government implicit debt of PPP projects” pertains to the debt exceeding the legally prescribed limit that local governments must shoulder throughout the execution of PPP projects [5]. This aspect is not explicitly captured in the government’s financial budget [6]. Consequently, what are the main factors of implicit debt risks of urban rail transit PPP projects? Can the use of policy on urban rail transit PPP projects result in a negative effect on government debt? What is the relationship between policy and implicit debt risks of urban rail transit PPP projects?
At present, the concealed and detrimental nature of the government’s implicit debt risk presents challenges in its quantification. The 14th Five-Year Plan advocates for prioritizing the prevention and mitigation of significant risks and challenges while also aiming to enhance the efficiency of national governance (China Central People’s Government. See https://www.gov.cn/xinwen/2021-03/03/content_5589853.htm, accessed on 11 April 2022). Based on the perspective of policy, this paper explores the influencing factors of urban rail transit PPP projects’ implicit debt risks and the impact of policy on the urban rail transit PPP projects’ implicit debt risks through a qualitative research method.
The government, as a representative of public entities, assumes significant responsibility for overseeing and administering urban rail transit PPP projects while also mitigating potential concealed government debt risks [7]. Policy plays a crucial role in reflecting the government’s dominant position in public–private partnership (PPP) projects. Consequently, judging the influencing factors of urban rail transit PPP projects’ implicit debt risk from the standpoint of policy is of great concern for academics. Compared with existing studies, the contributions of this paper are mainly as follows. Most existing studies on urban rail transit PPP projects’ debt risks have focused on government guarantees in PPP projects [8,9], contingent debt management for PPP Projects [10,11,12], and PPP project debt risk management framework in specific countries [13,14]. Although a few scholars have also started to pay attention to the implicit debt risks of urban rail transit PPP projects, there is a lack of explanation for the formation of implicit government debt risks [15,16]. From the perspective of policy, this paper empirically examines the relationship between policy and urban rail transit PPP projects’ implicit debt risks. This approach enriches the research related to urban rail transit PPP projects’ implicit debt risks. Moreover, this paper introduces policy-based impact factors to target policy recommendations for mitigating implicit debt risks for governments in developing countries. This research holds significant implications for enhancing the management of urban rail transit PPP projects, ensuring their sustainable development, and promoting the stability of the financial system.
This study employs a grounded theory approach to systematically examine the factors that influence government implicit debt risk in urban rail transit PPP projects, with a particular focus on relevant policies. Subsequently, a framework model is constructed to identify these influencing factors. The subsequent sections of this paper will proceed as follows: Section 2 provides a comprehensive review of previous literature in this field. Section 3 provides an overview of the research methodology, encompassing the study procedure and data sources. Subsequently, Section 4 presents the findings derived from the study, while Section 5 delves into a comprehensive analysis and discussion of the study. Finally, the ultimate section offers the conclusions drawn from the research.

2. Literature Review

In recent decades, the adoption of public–private partnerships (PPP) as a financing mechanism for infrastructure and public services has experienced significant growth on a global scale. The concept of PPP has been a subject of discussion among scholars from foreign countries dating back to the 19th century. Notably, scholars like Nayyar [17] and Kosycarz et al. [18] have conducted studies examining the feasibility and promotion of PPP models in various regions, intending to advance infrastructure PPP projects. Additionally, numerous scholars have researched decision-making aspects related to PPP projects, primarily focusing on matters such as the selection of concessionaires [17], the duration of concessions [19], and decision-making in the signing and negotiation of the concession contract [19]. Furthermore, previous researchers have employed case study methodologies to identify the factors that contribute to the success of public–private partnership (PPP) projects, which is demonstrated by recent studies [20,21,22,23]. Scholars also paid more attention to prevalent risks associated with PPP projects. Thus, we introduced the literature review in two aspects: risk identification of PPP projects and government debt risk of PPP projects.

2.1. Risk Identification of PPP Projects

In recent years, the Chinese government has vigorously introduced a series of policies to encourage social capital to participate in the construction and operation of utility tunnels and promoted the adoption of the PPP model. Risk identification is the primary task of risk management of PPP projects, which is the process of judging, confirming, and summarizing the potential risk factors faced by the target project. There are many studies on risk identification of PPP projects, both domestically and internationally, covering the risks of various aspects and stages of PPP projects [19,24,25,26,27]. Lai et al. summarized the current status of risk identification, risk assessment, and risk early warning research of PPP infrastructure projects in order to construct a theoretical framework for risk analysis and early warning of PPP projects in characteristic towns, which might benefit future research [28]. The most studied area is the common risks associated with PPP projects [29,30,31]. For example, Khahro et al. [32] presented the identified key risks of PPP projects in developing countries, which are mostly financial and public-oriented risks. With the widespread application of the PPP mode, scholars have realized the harm of other risks in PPP projects, such as residual value risk and financial risk. Yuan et al. studied the key influencing factors of residual value risk in PPP projects [33].

2.2. Government Debt Risk of PPP Project

The research on PPP government debt risk management can be divided into three categories: government guarantees in PPP projects [34,35,36], contingent debts in PPP projects [37,38,39], and debt risk management framework for PPP projects in specific countries. The research on government guarantees in PPP projects mainly focuses on qualitative analysis [34,35]. In light of the advent of contingent debt within PPP projects, scholars have conducted extensive research to explore the correlation between government contingent debt in PPP ventures and their financial sustainability [37]. Despite the delayed implementation of the PPP model in China, numerous scholars continue to demonstrate interest in its utilization within specific regions of the country, owing to its consequential social and economic advantages. Consequently, these scholars put forth various countermeasures and recommendations [40]. According to the Financial Research Center of the Chinese Academy of Financial Sciences (2018), it has been observed that public–private partnership (PPP) projects have the potential to generate implicit debt risks for local governments, especially for urban rail transit PPP projects. According to Wen and other scholars, it is imperative to pay attention to the concealed aspects of “minimum guarantee commitment” and “public equity and real debt” within the framework of the PPP model [4]. However, only a few scholars have conducted an evaluation and analysis on this issue, including the relief liability debt risk and government contingent debt risk [41,42].

2.3. Research Gap

Regarding related research, a few pieces of literature on PPP risks are emerging, aimed at identifying the appropriate countermeasures. A recent study in this stream addresses this issue by comparing the effectiveness of exclusivity guarantees and minimum demand guarantees in PPP contracts. Liu et al. developed a quantitative methodology to guide governments’ decisions when choosing among the fiscal support mechanisms, which compares their effects on the financing costs of a project and the government’s financial exposure [12]. However, the few existing studies do not consider the influencing factors of the implicit debt risks of urban rail transit PPP projects from the perspective of policy. Therefore, the existing literature does not provide an answer to the following research questions: What are the main factors of implicit debt risks of urban rail transit PPP projects? Does the choice of policy support result in the rising of implicit debt risks? What is the relationship between policy and implicit debt risks of urban rail transit PPP projects? Consequently, this paper proposes the following research hypothesis:
Hypothesis 1.
Policy support results in the rising implicit debt risks of urban rail transit PPP projects.
We position our research within this stream of studies and contribute to it by proposing a framework that provides an answer to the aforementioned research questions. In particular, we apply a systematic qualitative method for identifying implicit debt risks of urban rail transit PPP projects from the policy contents perspective so as to demonstrate the negative effect of policy support on implicit debt risks of urban rail

3. Research Methodology

3.1. Study Procedure

Grounded theory is an exploratory research methodology aimed at generating natural research problems and theories from standardized and rigorous research procedures [43]. This approach facilitated the researcher’s acquisition of fresh perspectives on implicit debt risk factors [44]. The term “grounded” refers to the abstraction and interconnection of data, while “theory” denotes a collection of validated and integrated concepts [45]. Following the collection of policy texts, the researcher proceeded to extract relevant policies, thereby enabling the iterative development of the theory through continuous analysis. As a method of mining theory, the basic steps of grounded theory are as follows.
(1) Open coding
The initial phase of open coding involves a collection of raw data and analyzing it line by line [46]. During this stage, qualitative data are broken up into meaningful themes that closely resemble the original content’s meaning. The relevant data are condensed through continuous comparisons and classification, while highly interconnected concepts are merged at a more theoretical and abstract level, ultimately leading to the conceptualization of the data [47]. The data for this study are from 20 urban rail transit PPP projects from mainstream media and related official websites in China (see Appendix A). Following the data analysis process of open coding, this study first marked all sentences of 20 projects and then deleted sentences with similar, same, and unclear meanings. Finally, the remaining sentences after deletion are classified into 14 themes (see Table 2). Table 2 shows the original concepts and themes resulting from open coding.
(2) Axial coding
Axial coding is a process comprising the following parts: further refining, adjusting, and classifying the various categories obtained from open coding; combining parts with similar or similar meanings; and clarifying interrelationships among the categories [48]. We invite stakeholders, such as project managers and administrative personnel, to take a look at the axial coding results to ensure the trustworthiness of the analyses [49]. According to the inherent characteristics of categories, the 14 themes in Table 2 were refined and classified to obtain seven subcategories and three main categories (see Table 3).
(3) Selective coding
Selective coding comprises the following activities: figuring out the core category; then analyzing and describing the relationship between the core category and the main category in the form of a “storyline”; and, ultimately, producing the corresponding theoretical results [50]. The typical relationship structure of the three main categories has been developed (see Table 3). Through analysis and research, “the implicit governmental debt risk in urban rail transit PPP projects” was determined to be the core category (see Figure 1). Finally, a theoretical framework for analyzing the implicit debt risk factors of urban rail transit PPP projects is presented.
(4) The test of theoretical saturation
Many procedures can ensure the trustworthiness of qualitative analyses [51]. As for ground theory, the test of theoretical saturation is applied to ensure the trustworthiness of the analyses. Theoretical saturation refers to the moment when additional data cannot be obtained to further develop the characteristics of a certain category [43,52]. Therefore, we used the other six new projects arranged in this article and went through the process of open coding, axial coding, and selective coding (See Appendix A). We find that no obvious novel concepts, categories, and relationships were found. This indicates that “the implicit governmental debt risk in urban rail transit PPP projects” model has an appropriate theoretical saturation (see Figure 1).

3.2. Data Sources

This paper examines the impact factors of policy on urban rail PPP projects’ implicit debt risks in China, using a sample of Chinese cities at the prefecture level. Policy is the perspective of this paper. The 2019 “Implementation Opinions on Promoting the Standardized Development of Cooperation between the Government and Social Capital” is used as the policy shock event. The opinion is a guiding opinion to ensure successful cooperation between the government and the private sector. Considering the validity of the sample data, the sample of projects with incomplete information and missing key data were excluded from this paper. This paper finally obtains 20 urban rail transit public–private partnership (PPP) projects in China. The information on urban rail PPP projects is mainly obtained from the textual information contained in the China Public Private Partnerships Centre (“Implementation Opinions on Promoting the Standardized Development of Cooperation between the Government and Social Capital.” See http://jrs.mof.gov.cn/zhuanti2019/ppp/zcfbppp/202003/t20200330_3490443.htm, accessed on 1 March 2021), Rail transit network (Rail transit network. See http://www.rail-transit.com/, accessed on 8 March 2021), Ministry of Transport of the People’s Republic of China (Ministry of Transport of the People’s Republic of China. See https://www.mot.gov.cn/, accessed on 10 May 2021). Specific details regarding the projects can be found in Appendix A. This paper constructs a qualitative model based on the grounded theory. Thus, information mining is very important. Thus, regulations and policies for the management of financial subsidy funds for the projects are then searched through official websites of local finance bureaus, such as “Interim Measures for the Management of Financial Subsidy Funds for Local Urban Public Transport Enterprises in Hohhot City” (Hohhot Finance Bureau. See http://czj.huhhot.gov.cn/slb/zcwj/, accessed on 17 May 2021). As this paper aims to discuss the implicit debt risks factors of urban rail transit projects. We select useful contents of each regulation and policy, containing the keywords “subsidy”, ”measures”, ”operation cost”, “prices”, ”support”, etc. (Table 2).
The data presented in this article exhibits commendable quality for several reasons. Firstly, the chosen projects demonstrate wide distribution and strong representativeness, covering various cities, including Tianjin, Chongqing, Dongguan, Guiyang, Hangzhou, Wenzhou, Wuxi, Chuzhou, Nanchang, Dalian, and Taiyuan. Secondly, these cities encompass diverse economic levels, thereby reflecting varying operational capacities. Lastly, the size of projects influences the magnitude of debt risks incurred.

4. Results and Discussion

Urban rail transit is classified as quasi-public welfare infrastructure. Does policy support result in a negative effect on implicit debt risks of urban rail transit PPP projects? The answer is yes. This paper draws evidence from the urban rail transit PPP projects in Chinese media, uses grounded theory to clarify the implicit debt risk factors, and provides a framework for understanding the relation between policy and implicit debt risks of urban rail transit PPP projects (see Figure 1).
The results in Figure 1 indicate that there are three significant policy factors influencing implicit debt risks of urban rail transit PPP projects, verifying the proposed hypothesis. An important reason lies in the excessive guarantee policy for the PPP projects. The governmental guarantee policy contains governmental subsidies, external risk sharing, and supporting measures, as shown in Figure 1. Specifically, governmental subsidies have a direct impact on the implicit debt risks associated with urban rail transit PPP projects. As is revealed in previous studies, the implementation of PPP projects has multiple uncertainties. One of the critical issues is the uncertainty about revenue gathered during the operation of the PPP infrastructure projects (revenue risk) [53]. Very often, the impact of revenue risk on the urban rail transit PPP projects profitability prevents the private sector from providing agreed-upon services on the strength of the contract with the government. In such a case, in order to make PPP projects attractive to private investors, governments apply subsidies to reduce the financial risk borne by the private investor to a level that makes the project feasible from the perspective of the private sector [54]. The theme of revenue risk and its mitigation through government subsidies has been addressed in several studies by proposing and analyzing several forms of public support, such as minimum revenue guarantee (MRG) and minimum demand, which can explain the results in this study that government subsidies include operating and demand subsidies. This approach exceeds the government’s financial budget and eventually brings implicit debt risks for the government. This outcome can be further specified through operating subsidies and demand subsidies. Operating subsidies refer to payments made to the project company following the terms outlined in the PPP project contract once the project has entered its operational phase [55]. Generally, the operating income of PPP projects may not be adequate for the private partner, particularly when the project employs government-regulated low ticket prices. In cases where the actual returns for investors fall below the guaranteed profits promised by the government, the local government provides a minimum proceeds guarantee to cover the shortfall. This subsidy is granted to social investors when the project’s income fails to meet the reasonable rate of return expected by these investors. The local government also utilizes the operation costs accrued by the project company to successfully execute the construction and operation of the PPP project as the foundation for obtaining additional reasonable profits. For instance, the finance of Hohhot City is required to subsidize over 60% of the operating costs. A study conducted by Carbonara and Pellegrino shows that PPP project participants are expected to implement comprehensive life cycle performance management of PPP projects based on the principles of efficiency payment and establish a mechanism for supervising and holding accountable the performance management of PPP projects [56]. This situation exacerbates the current problem of implicit debt risks of PPP projects. For instance, when the predetermined evaluation criteria are achieved, the government is obligated to fully compensate the project company for its operational services. Conversely, if the specified assessment indicators are not met, a deduction will be made from the payable operation service fee. The existing literature also indicates that PPP projects achieve satisfactory investment returns using “user charges” and “feasibility gap subsidies”, with the determinant factor being the level of “project demand” [57]. The result is consistent with previous studies. Based on the research conducted by Feng, the private partner frequently relies on government subsidies to guarantee the minimum project demand. Especially in cases where the projected passenger flow falls short, the project company can secure a passenger-flow subsidy from the government. This subsidy is called “compensate for the loss of passenger flow”. This implies that the actual demand for urban rail transit PPP projects in China usually cannot reach a preferable status. The results not only classify the main implicit debt risk factors of urban rail transit PPP projects but also provide governments with a reference in terms of how they can decrease the implicit debt risks of urban rail transit PPP projects.
In addition, external risk sharing, as an external factor, contributes to the increasing fiscal expenditure due to the government’s social responsibility. This result supports evidence from previous observations that the role that government support may have in risk sharing between parties [36]. This result can be explained by the embedded features of PPP projects. Specifically, the government and the private sector construct a collaborative partnership to distribute external environmental risks of urban rail transit PPP projects. Amid this relationship, the government carries substantial obligations, primarily encompassing the mitigation of risks arising from policy and legal modifications, as well as the potential failure of projects to meet anticipated objectives. In particular, the approach proposed for benchmarking government policy involves two most relevant aspects on which the PPP literature on risks has addressed. On the one hand, the risk of circumstances changing primarily encompasses alterations in investment resulting from modifications in design, as well as legal or policy adjustments. Initially, the preliminary design plays a crucial role in estimating the budget, as it not only establishes the project’s investment and financing allocation but also determines the level of complexity involved in executing the project on-site. In the event of design changes in PPP projects leading to variations in the investment amount, the private sector will face heightened financial burdens. On the other hand, the PPP model entails the allocation of risks and losses arising from force majeure events between the government and the private. In the event of a force majeure event, if PPP projects resume operations and both parties mutually agree to continue, the government will employ distinct relief measures to indemnify social capital for the losses incurred, taking into account the payment attributes of the PPP project.
The findings also confirm the importance and effectiveness of the supporting measures in the implicit debt risks of urban rail transit PPP projects. These measures pertain to the government’s assistance for public services to mitigate the impact of uncertain external factors. They include subsidiary facilities, preferential measures, and project measures. A possible explanation for this might be that the government will undertake intervention measures as part of its obligation to ensure the utmost quality and effectiveness of PPP projects when the private participants are incapable of bearing the burden of force majeure risks. As is reported in the issue of “Management Measures for Infrastructure and Public Utilities Franchising”, government involvement and takeover measures are applied to ensure the project’s successful implementation. The implementation of supporting measures will convert implicit debt into explicit debt, thus heightening the risk associated with implicit government debt by impacting the government’s financial standing. Recognizing the relevance of this topic, a few streams of literature in PPP risk allocation are emerging, aimed at supporting the parties in the selection of the proper form of public support. The findings indicate that supporting measures contain subsidiary facilities, preferential measures, and project measures, which are in accordance with recent studies. There are several possible explanations for this result. Firstly, the issue of land acquisition and demolition is currently a highly sensitive matter in China, as it directly impacts project progress and investment success. Consequently, the demolition process assumes a crucial role in ensuring the establishment of subsidiary facilities. Secondly, numerous small and medium-sized enterprises encounter limitations in their capacity to engage in PPP projects, particularly those infrastructure that entails substantial investments. To ensure equitable involvement of these enterprises in PPP endeavors, the government has put forth a proposition wherein small and medium-sized enterprises would be granted preferential evaluation and supplementary measures when participating in government procurement undertakings. For example, a price discount (6–10%) for minor enterprises is provided during the evaluation process. Taking into account the different degrees of competition in different industries, the practice of specifying the proportion range is adopted. To provide suitable assistance to small and medium-sized enterprises, the government is obligated to fully and punctually disburse the procurement funds as stipulated in the contractual agreement. This obligation is further emphasized in pertinent regulations, including the specified duration for guaranteed subsidies. Thirdly, the government prefers to adopt exclusivity guarantees during the whole concession period, from concession financing at the beginning, then relationship coordination among all parties involved, to project takeover at the end of the concession period. Concession financing is undoubtedly an exclusivity-supporting measure due to the embedded features of PPP projects. Relationship coordination is needed due to the reason that PPP projects involve multiple stakeholders, including the public sector, the private sector, financial institutions, citizens, and other participants. Moreover, project takeover refers to the compulsory acceptance and administration by the government in specific circumstances, intending to safeguard public utilities and uphold public interests. This measure has been proved in recent studies.
The primary motivation for establishing the framework is to achieve sustainable development of government finance by recognizing the implicit debt risk factors of urban rail transit PPP projects. On the one hand, the model addresses the issue of the impact that government policy has on the implicit debt risks from the government standpoint, which is often neglected. On the other hand, the model helps prevent policy from being used when they do not conduct the expected results to improve policy effectiveness. That emphasizes the importance of the rational selection range of policy, which is only possible by using the framework as the model we developed. Finally, it is interesting to observe that when discussing policy, it is important to not only consider its economic value (e.g., the profitability for the private party) but also its risks.

5. Conclusions

This paper is a theoretical study of designing and implementing optimal policy vision against the government’s implicit debt risks of urban rail public–private partnership (PPP) projects in China. Using policy in China, this paper explores in depth the influencing factors of implicit debt risks on PPP mode in urban rail projects applying grounded theory. It examines policies related to urban rail transit PPP projects at various levels and regions to identify the factors that influence this risk. The collected materials are then subjected to a three-stage coding program, which is scientifically standardized.
The main conclusions obtained from this paper are as follows: firstly, governmental subsidies help reduce the financing cost of urban rail PPP projects but increase the implicit debt risks. Local governments provide necessary subsidies for the private partners to compensate for price and demand losses, which are the decisive factors of projects’ operation revenue. Secondly, implicit debt risks also stem from the risk-sharing features of PPP projects. Originally, the PPP mode was intended to relieve financial risks for local governments. However, the risk-sharing responsibility leans towards the local government because of its properties, which have changed the original intention of PPP mode. Thirdly, guarantee measures increase the risk associated with implicit government debt by impacting the government’s fiscal expenditure.
To decrease the negative influence of policy on urban rail transit PPP projects and achieve the goal of sustainable development, this paper uses the following insights to put forward policy recommendations for the development of urban rail transit PPP projects. Firstly, the government should set a boundary for subsidies and avoid subsidies exceeding the boundary. At the same time, the government should introduce relevant quantitative standards to balance the risk-sharing responsibilities. On this basis, the relationship between the government and the private partners should be handled well to build a diversified investment and financing pattern. Secondly, regional advantages need to be considered when constructing urban rail PPP projects. When selecting cooperative private enterprises, for example, profitable local industries with high anti-risk capacity become more collaborative. Thirdly, the economic benefits of urban rail PPP projects should be harnessed to enhance the transportation infrastructure to which it connects. The benefits help to weaken the impacts of implicit debt risks of urban rail PPP projects and promote transportation development. Finally, the government should advocate the construction of green urban rail transit PPP projects to improve urban environmental quality. That means the economic construction of urban rail PPP projects and environmental construction need to be combined. In this way, the environmental effects of the projects compensate for governments’ financial pressure.
The contributions of this study are twofold: (1) it highlights the role of excessive policy as a significant determinant of implicit debt risks of urban rail PPP projects. In particular, understanding government guarantees through policies is a matter of utmost importance. On the one hand, government guarantees include governmental subsidies, external risk-sharing, and guarantee measures. On the other hand, government guarantees arise from governments’ responsibility and the features of PPP projects; and (2) it provides a qualitative method that examines the government implicit risk factors associated with urban rail PPP projects based on grounded theory. Amid important policy analysis that emphasizes the role of government guarantees, our results can inform policymakers on a heretofore unexplored adverse effect of government guarantees.
However, it is important to note that the influencing factors of governmental implicit risks are diverse and extensive. Therefore, we recommend further research be conducted to combine qualitative methods and quantitative models with a specific focus on a comprehensive database of influencing factors. This will allow for the enhancement of the theoretical model through the integration of quantitative research methods.

Author Contributions

Y.Z.: conceptualization, methodology, software, validation, visualization, writing—original draft. W.J.: writing—review and editing, supervision. J.Y.: writing—editing. All authors have read and agreed to the published version of the manuscript.

Funding

This research was funded by the Humanities and Social Sciences Foundation of the Ministry of Education (21YJCZH226) and the Social Science Fund of Jiangsu Province (22GLB003).

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

Data collected or analyzed during the study are available from the corresponding author upon reasonable request.

Conflicts of Interest

The authors declare no conflict of interest.

Appendix A

Table A1. Description of 26 projects (accessed on 17 May 2021).
Table A1. Description of 26 projects (accessed on 17 May 2021).
NoTitleSourceNoTitleSource
1Hohhot Metro Line 1http://czj.huhhot.gov.cn/zwdt/gzdt/202201/t20220127_1174809.html14Ningbo Zhoushan Railwayhttp://zjpubservice.zjzwfw.gov.cn/jyxxgk/002001/002001004/20221102/232d8237-a480-4915-986a-8796a5780345.html
2Sanya Tramhttp://lwt.hainan.gov.cn/xxgk_55333/0503/201306/t20130607_2435935.html15Qingdao Metro Line 1http://qdsxzspfwj.qingdao.gov.cn/gzdt/gzdt_gzdt/202112/t20211223_4122801.shtml
3Fuzhou Rail Transithttp://www.fuzhou.gov.cn/zgfzzt/zdjsxm/detail.htm?id=4028e9b97d4b80c3017d994a1af642ae&request=116Hefei Metro Line 2https://jtj.hefei.gov.cn/jtxw/tzgg/14766473.html
4Hangzhou Metro Line 1https://mp.weixin.qq.com/s?__biz=MzI3NzMwODY3OQ==&mid=2247494680&idx=1&sn=7b0dca7c66190e354abffc5ba26b39ed&chksm=eb6a9870dc1d1166a638fd40aa6f6af62fb0be8e5e411fec68dde925149f48c34777c8036b6f&scene=2717Wuhu Rail Transit Line 1https://whsggj.wuhu.gov.cn/openness/public/6596831/35222751.html
5Beijing Metro Line 4https://www.zwzyzx.com/content-268-237804-1.html18Hanghai Intercity Railwayhttp://zjrb.zjol.com.cn/html/2021-06/28/content_3449323.htm
6Urumqi Rail Transit Line 2https://www.urumqimtr.com/zbgg/7763.aspx19Nanchang Urban Rail Transit Line 3http://www.ccgp-jiangxi.gov.cn/web/jyxx/002006/002006004/20190315/ccabba61-945b-42b3-8b91-ae958a0e42c6.html
7Tianjin Metro Line 7https://zfcxjs.tj.gov.cn/20Wenzhou City Railway Line 1 PPP Projecthttp://www.ccgp.gov.cn/cggg/dfgg/jzxcs/201904/t20190402_11847783.htm
8Tianjin Metro Line 11https://zfcxjs.tj.gov.cn/21Beijing Metro Line 14http://www.chinacem.com.cn/ppp-alfx/2015-05/189212.html
9Tianjin Metro Line 4https://www.cpppc.org/PPPzcjtqg/1002599.jhtml22Harbin Rail Transit Line 2 Phase I Projecthttps://www.sohu.com/a/118298242_114731
10Chuning Intercity Railwayhttps://www.cpppc.org/PPPzcjtqg/1002256.jhtml23Xuzhou Urban Rail Transit Line 1 Phase I Projecthttp://czj.xz.gov.cn/xwzx/001001/20220322/6965c0b8-6f00-4350-9d2e-59265e954985.html
11Wuxi-Jiangyin Intercity Rail Transithttps://www.cpppc.org/PPPzcjtqg/1001939.jhtml24Guiyang Metro Line 2 Phase I Projecthttps://ggzy.guizhou.gov.cn/zhdt/szxdt/201912/t20191214_73499784.html
12Notice of the General Office of the Ministry of Transport on Further Supporting the Development of Small and Medium Enterprises in the Field of Highway Constructionhttps://www.cpppc.org/jtysb/1002664.jhtml25Hefei Metro Line 2http://hf.bendibao.com/traffic/20141216/50789.shtm
13Xuzhou Urban Rail Transit Line 3http://www.ccgp.gov.cn/cggg/dfgg/cjgg/202211/t20221107_18962329.htm26Kunming Metro Line 4http://www.ccgp.gov.cn/cggg/dfgg/zbgg/201609/t20160921_7341500.htm

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Sustainability 15 14078 g001
Figure 1. The theoretical framework for analyzing the implicit debt risk factors of urban rail transit PPP projects.
Figure 1. The theoretical framework for analyzing the implicit debt risk factors of urban rail transit PPP projects.
Sustainability 15 14078 g001
Table 1. Asset liability ratio of national urban rail transit projects.
Table 1. Asset liability ratio of national urban rail transit projects.
YearData
202086.71%
202185.79%
202287.63%
Table 2. Examples of open coding analysis.
Table 2. Examples of open coding analysis.
NoThemesOriginal Statements
1Compensation for operating costsA1: More than 60% of the operating costs require subsidies from the Hohhot Municipal Government.
A2: The operating costs of enterprises are subsidized by the government.
A3: Based on the full cost of the subway, an annual financial subsidy of 800 to 900 million yuan is required.
A4: In terms of the return mechanism, the project adopts a feasibility gap subsidy model, where the income source of the project company is “user payment and government subsidies”.
A5: The project company realizes the repayment of project company B’s debts, the recovery of investment by party C, and obtains reasonable investment returns through operating ticket revenue, resource development revenue, and government subsidies,
A6: Considering the feasibility gap subsidy project, the government’s equity investment will be partially waived for dividends, and the equity investment will be recovered from the project company. The initial subsidy funds will be reduced.
2Payment for performanceA7: If the specified assessment indicators are met, the municipal government (or authorized unit) shall pay the project company’s operating service fee in full. If it fails to meet the specified assessment indicators, it shall be deducted from the payable operation service fee.
3Minimum-Proceeds-GuaranteeA8: The government provides necessary subsidies for the project based on project investment, financing, and operational efficiency, taking into account the reasonable returns of social investors.
A9: The subsidy is provided by the government to social investors when the project’s income cannot meet the reasonable return rate of social investors.
A10: The financial department pays the difference between the agreed fare and the clear fare to the Hangzhou and Hong Kong metro through the government purchase of services.
A11: When there is a feasibility gap in the cash flow statement of the project financial plan under normal operation of the project, the Fuzhou Municipal Government (or through implementing agencies) shall provide government subsidies to the project company by the provisions of the franchise agreement.
A12: In Sanya, the tram adopts a one-ticket system of 3 yuan per person per time, which is super cheap and lower than many subway fares in China.
A13: If the actual ticket price is lower than the calculated ticket price, the government will compensate the franchise company for the difference.
4Compensation for loss of passenger flowA14: The minimum demand risk shall be undertaken by Party A.
A15: If the actual passenger flow of that year is less than 90% of the predicted passenger flow, the B project company, in conjunction with Party B, shall report to Party A for approval and make up for it separately through financial subsidies.
5Investment compensation due to design changesA16: Any changes of investment caused by design changes that are approved by the municipal government (such as changes in construction scale, adjustments to station locations, and major changes in main and ancillary projects) shall be compensated by the municipal government.
6Cost compensation due to legal or policy changesA17: When the construction or operating costs of the project company increase due to requirements from the municipal government or changes in laws at the municipal government level, reasonable compensation shall be given to the project company.
A18: Actively utilizing administrative means to mitigate the impact of policy and legal adjustments.
7Undertaking changes of objective factorsA19: Any changes in ticket prices caused by objective factors shall be undertaken by the government.
A20: The risk of passenger flow, price rise, ticket price, force majeure, etc. shall be jointly undertaken by Party C and Party A through the establishment of risk sharing through PPP contracts.
8Demolition workA21: Except for the “two sites and one section” project, the external power supply system and 110kV main substation project, as well as the installation of related mechanical and electrical equipment, the relevant land acquisition and demolition work shall be handled by the district and county governments along the project, and the funds shall be provided by the district and county governments along the line.
9Land supportA22: The first party shall allocate 2000 acres of land resources for this project and authorize the second party to carry out primary land development. The value-added income from the primary land development shall be used as the source of funding for the project financing repayment of principal and interest.
10Price discount for minor enterprisesA23: According to the Interim Measures for Promoting the Development of Small and Medium-sized Enterprises through Government Procurement issued by the Ministry of Finance, a 6% deduction will be given for the prices of small and micro-enterprise products in this project.
11Guaranteed subsidy timeA24: The first party grants the project company franchise rights, and the franchise rights owned by the project company will not change due to changes in shareholders.
A25: After the signing of this contract, Party A shall provide Party C with an approved medium-term financial plan that includes the financial feasibility gap subsidy for this project (if the planning period cannot cover the cooperation period of this project, Party A shall provide it in a rolling manner).
12Project takeoverA26: If Party C or the project company seriously violates the provisions of the cooperation contract, affects the continuous stable and safe supply of public goods and services, or endangers national security and major public interests, the municipal government has the right to temporarily take over the cooperation project until the cooperation project is initiated and terminated in advance.
13Concession financingA27: Debt financing is through a pledge of franchise rights, project asset mortgage, and other means.
A28: PPP financing is a project-based financing activity and a form of project financing, mainly based on the expected returns, assets, and the strength of government support measures of the project.
A29: The direct benefits of project operation and the benefits converted through government support are the sources of funds for repaying loans. The assets of the project company and the limited commitments given by the government are the safety guarantees of the loans.
A30: Social capital and the government jointly establish a project company with a shareholding ratio of 70% and 30%.
A31: The Municipal Public Transport Group, as a representative of the government investor, contributed 100 million yuan, accounting for 27.22% of the project company.
14Relationship coordination among all parties involvedA32: The phenomenon of low participation rate of social capital, low willingness to participate, and high failure rate in PPP projects in China has emerged. Therefore, the government should actively cultivate relationships among all parties involved in PPP.
Table 3. Axial coding.
Table 3. Axial coding.
Main CategorySubcategoryTheme
Governmental subsidiesOperational subsidiesCompensation for operating costs
Payment for performance
Minimum revenue guarantee
Demand subsidiesCompensation for loss of passenger flow
External risk sharingCompensation for economic and legal risksInvestment compensation due to design changes
Cost compensation due to legal or policy changes
Compensation for force majeure risksUndertaking changes of objective factors
Supporting measuresSubsidiary facilitiesDemolition work
Land support
Preferential measuresPrice discount for minor enterprises
Guaranteed subsidy time
Project measuresProject Takeover
Concession financing
Relationship coordination among all parties involved
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Zhang, Y.; Jin, W.; Yuan, J. Policy Perspective on Governmental Implicit Debt Risks of Urban Rail Transit PPP Projects in China: A Grounded Theory Approach. Sustainability 2023, 15, 14078. https://doi.org/10.3390/su151914078

AMA Style

Zhang Y, Jin W, Yuan J. Policy Perspective on Governmental Implicit Debt Risks of Urban Rail Transit PPP Projects in China: A Grounded Theory Approach. Sustainability. 2023; 15(19):14078. https://doi.org/10.3390/su151914078

Chicago/Turabian Style

Zhang, Yajing, Weijian Jin, and Jingfeng Yuan. 2023. "Policy Perspective on Governmental Implicit Debt Risks of Urban Rail Transit PPP Projects in China: A Grounded Theory Approach" Sustainability 15, no. 19: 14078. https://doi.org/10.3390/su151914078

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