Compliance of infrastructure investment market participants


MMarket players have increasingly engaged in infrastructure projects as the government gradually opens up investment in them. Various transaction modes allowing market participants to participate in infrastructure investments can be divided into “standard modes” and “non-standard modes”, depending on whether or not they are based on a clear legal basis.

In practice, standard modes mainly include public-private partnership (PPP) and franchise modes, while non-standard modes mainly include financing and construction, licensing and capital cooperation, and cooperation in terms of investment.

In this article, the authors provide details on compliance in standard and non-standard investment modes.


Liu Fei
Senior partner
AllBright Law Firms

The key to compliance of standard modes is to assess whether they comply with the provisions of the relevant applicable laws, depending on whether it is an investment in PPPs or franchises. For PPPs, attention should be paid to the following compliance issues:

(1) Nature of the project and duration of the cooperation. A PPP project is in fact a social assistance project in the field of public service, the duration of the cooperation must therefore in principle be more than 10 years;

(2) Risk sharing mechanism. The government mainly bears the political and legal risks in a PPP, while social capital is mainly responsible for the investment, construction and operation of the project, bearing the corresponding risks;

(3) Performance-based compensation mechanism. PPP projects should establish a payment mechanism entirely tied to the performance of a project – without fixing in advance the extent and amount of government spending responsibility – by lowering evaluation criteria or buy-outs. the government of the investment capital of social capital, promises of fixed returns or guarantees of minimum returns;

(4) Procurement in accordance with legal procedures. The government should select its investor in the market through competitive means such as public tenders, selective tenders and competitive negotiation;

Yan Gangbo Law Firms AllBright
Yan Gangbo
AllBright Law Firms

(5) Compliance of the implementation process. Since no formal administrative laws or regulations have been issued for PPP projects, the specific implementation should mainly follow the normative documents issued by the Ministry of Finance, National Development and Reform Commission (NDRC) and other relevant ministries and national commissions. For example, preparing and submitting project implementation plans to local government for approval, and performing value-for-money and affordability assessment procedures as needed.

For franchises, important compliance issues are substantially similar to PPP mode. However, the specific implementation of the projects shall follow the relevant provisions of the Measures for the Administration of Infrastructure and Utilities Concessions promulgated by the NDRC.

For example: prepare and submit franchise project implementation plans to the local people’s government or its authorized department for approval; perform a project feasibility and value for money assessment, as required; and conduct financial affordability assessment of projects requiring sustainability gap funding from the government.


The lack of uniform legal provisions for non-standard modes means that compliance analysis cannot be performed by measuring how well it meets the applicable requirements of the relevant legal documents, but rather whether prohibitive provisions are violated under applicable laws. The main areas of concern are:

Implicit public debt should be avoided. The finance law stipulates that the budgets of local authorities at all levels must be prepared according to the principles of “keeping expenditure within the limits of revenue and maintaining a balance”, and no deficit must be recorded, except contrary to the finance law.

Part of the funds necessary for investment in construction in the budgets of provincial governments, autonomous regions and municipalities approved by the State Council can be raised through the issuance of local government bonds (general bonds or special), within a limit determined by the Council of State. Otherwise, the local authorities and their subordinate departments may under no circumstances contract loans.

In accordance with the Law on Public Procurement, public procurement must be carried out strictly in accordance with the approved budgets. Procurement of goods, projects and services should not be undertaken until the corresponding budgets are in place.

Therefore, for non-standard modes involving public funds, the use of these funds must comply with the aforementioned regulations – otherwise, it may constitute an implicit debt of the government.

Construction on advance funds is prohibited for public investment projects. According to the Public Investment Regulations, public investment projects are directly invested by the government or with its capital injection. Funds required for government investment projects must be in place in accordance with relevant national regulations, and construction entities cannot advance funds for them.

Proper use of revenues expected from the transfer of rights to use state-owned land. Since infrastructure projects often involve large investments, a certain amount of for-profit land revenue is usually used to supplement funding for projects operated by market players.

However, it should be noted that income from the transfer of land use rights constitutes a budget for the state-managed fund and its use must strictly follow the principle of “separation of income and expenditure”, according to the terms and scope of use stipulated in the revenue and expenditure management measures of the transfer of the right to use state land.

In addition, according to the Department of Finance Notice on Further Regulation of Local Government Debt Financing, local governments are not permitted to commit expected land use rights revenue from reserve lands as a source. debt repayment funds for finance platform companies.

Therefore, if part of the for-profit property income is necessary to supplement the financing of projects operated by market players, attention should also be paid to the legal compliance of the supplement mechanism.

This analysis of the compliance of transactional modes of participation of market players in investments in infrastructure projects is based on the practical experience of the authors.

With respect to specific projects, the authors suggest that all participants pay sufficient attention to the compliance of the relevant transaction modes, analyze and fully demonstrate this compliance from the start of the project in order to lay a solid foundation for an implementation. strong implementation and realization of investment income.

Carl Li AllBright Law Offices Customs

AllBright Law Firms
11/F and 12/F, Shanghai Tower
No. 501 Yincheng Middle Road
Pudong New Area
Shanghai 200120, China
Contact details:
Tel: +86 21 2051 1000
Fax: +86 21 2051 1999

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