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Water Public-Private Partnerships from the Urban Regime Perspective: A Case Study of Jiangsu Province
The Korean Journal of International Studies 21-3 (December 2023), 447-470
Published online December 31, 2023
© 2023 The Korean Association of International Studies.

Jihye Oh  [Bio-Data]
Received September 16, 2023; Revised October 19, 2023; Accepted December 7, 2023.
This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/3.0) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abstract
Since the Chinese government recognized expanding urban infrastructure as a propellant in boosting economic development, public-private partnerships (PPPs) have become a popular business model for constructing infrastructure. China has actively collaborated with the private sector. In particular, water PPPs have developed significantly, as much as China has already led the world PPP market. This paper focuses on Jiangsu Province and examine the formation and development of the urban water regime in the Chinese developmental state by applying urban regime theory. This study finds that the coalition in the water PPP mechanism is analogous to the structure of an urban regime and it is applicable in describing the coalition in the Chinese water infrastructure sector, despite insufficient preconditions in the theory. This study contributes to rethinking the features of the Chinese market and the flow of government policy in the water sector.
Keywords : China, Jiangsu Province, Urban Regime Theory, Water PPPs, Wastewater Treatment
INTRODUCTION

The direct or indirect effect of building infrastructure may accelerate economic development, or the construction of infrastructure can be pursued by the expectation of inducing economic development by way of an inflow of foreign money. Regardless of whether it is the former or the latter, the Chinese government has regarded building infrastructure as a key axis for economic development and public-private partnerships (PPP) have led the infrastructure sector.

The term public-private partnership appeared in the US in the early twentieth century, “initially relating joint public and private sector delivery of educational programmes” (Yescombe and Farquharson 2018, 8). For the joint objectives of the public and private sector, such as specified economic development objectives, actors from more than one agency agree to collaborate in involvement or funding (Bennett and Krebs 1994; Sellgren 1990). The partnership can be expected to minimize risks while sharing and maximizing resources and skills through the utilization of benefits tactfully derived from each partner in the community (McQuaid 2000).

Public Private Partnerships do exist in the water sector. Water resources have a feature of non-excludability that non-paying consumers to use the resources, but it is also excludable in that those non-paying consumers can be prevented from consumtion. This‘ theoretical basis of market-based approaches created a niche for private sector participation (PSP) in the traditional public sector (requoted from Gray 1983; Seppälä et al. 2001). The introduction of the private sector as an economic operator of infrastructure also changed the term from user to customer (Mandri-Perrott and Stiggers, 2013). Concerning the provision of public goods and services, due to the limited capacity of the government, the PSP has responded to the growing need to provide public services to customers.

Since China first adopted the build-operate-transfer (BOT) project in the infrastructure sector in 1984, the Chengdu No. 6 Water Supply BOT Plant (B) was the first PPP project approved by the Chinese government in late 1996 after the enactment of the BOT circular in 1995. Several PPP projects such as the Shenzhen Shajiao B power project in 1984, had been executed before the Chengdu No.6 projects; however, the latter projects were recognized by the central government as official BOT projects. In the same year, Thames Water initiated a contract pertaining to the Shanghai Dachang Water Supply BOT project (Lee 2010; Ye and Tiong 2000; Zhong et al. 2008).

According to the World Bank1, China had implemented 1,768 PPP projects in the infrastructure sector by 2019. The road sector had the highest amount of investment (USD 73.7 billion, 252 projects), whereas the water and sewage sectors had the largest number of projects (544). The total investment from 1991 to 2019 is worth USD 17.22 billion. According to the China Public Private Partnership Center, 33.5 % of Chinese PPP projects are water related.

Among the various contract types, the greenfield mode has been the most popular due to the large scale of urban infrastructure investment in the building process. In the 1990s and 2000s, most Chinese cities were worried about a chronic lack of appropriate water infrastructure. Jiangsu Province shared this common issue and actively attracted the BOT type in the water infrastructure. Although the GDP per capita of Jiangsu (USD 17,918) was the third largest in 2019, the sludge disposal rate continued to be less than 25 % until the mid-2010s. Three-quarters of wastewater was deposited directly in rivers or seas without any appropriate treatment (National Bureau of Statistics of China 2016, 2019).

This study starts at an interesting point where the Chinese government even brought PSP into public service. Although the water PPP mechanism can be seen as similar to a coalition in urban regime theory (URT), the coalition of water PPPs has changed according to political and economic changes or government policies. This study finds that the government sector began to reassert the urban water regime in a unique Chinese style after the 2000s.

Research Questions, Scope, and Structure

This study poses the following research questions: “How has the coalition of PPPs developed in the Chinese water sector under an authoritarian regime?” By providing answers to this question, the author hopes to (1) highlight the similarities with the assumptions of URT, (2) illustrate the presence of urbal coalition in urban water PPP projects, and (3) elaborate on the mutual relationships among urban coalitions depending on political and economic changes. This study finds a similar structure in the urban regime of the Jiangsu water sector and referred to it as “the urban water regime”.

In geographical scope, this study is limited to Jiangsu Province. Jiangsu Province has led the most active PPPs since China adopted the PPP strategy in its infrastructure development. According to World Bank PPI data until 2021, one of 10 water PPP projects was conducted in Jiangsu. The number of PPP projects contracted in Jiangsu was the largest among other provinces. This PPP strategy and development pattern in Jiangsu was seen in other coastal areas such as Guangdong and Shandong. Therefore, the study expected that the analysis on PPPs in Jiangsu would be helpful in finding out the features of water PPPs in coastal areas.

This study also explores the period between 1994 and 2014. Since the Chinese government adopted PPP modes in the infrastructure sector, PPP had developed at the local level until 2015. The central government began to strengthen its intervention in the developing process of PPP after 2008. However, the involvement of the central government remained partial case by case, the author observed the reduced authority of local governments in the implementation of PPP projects, after the central government announced the “First Year of PPP” and established the China Public Private Partnership Center in 2015. Therefore, this studyis limited to the period between 1994 and 2014 because it tries to understand the features of water urban regimes at the local level.

This paper begins with a review of URT and previous studies that have explored the link between URT and Chinese urban development. This study examines the theoretical conditions and industrial features and whether URT can be applied to the PPP mechanism in the Chinese water sector. The final section observes the changes in the private sector under Chinese political and economic structures to understand the features of the urban water regime.

Methodology

This study included a field trip to Nanjing and Beijing in the spring of 2017. Six interviews were conducted in person with two employees of foreign water companies in Jiangsu, two in local water companies located in Beijing, one person from a foreign financial institution in Beijing, and one employee from a Korean government environmental institute located in Beijing. The interviewees answered several questions on the competitiveness between foreign and local water companies in technology, management, price, merit or demerit of each company, the difficulties of going into the market, the relationship between the private and government sectors, common contracting patterns and the role of government officials and developers in the contract process, and expectations of the future water PPP market.

The study had difficulty obtaining specific information about Jiangsu PPP data or expert opinions in Jiangsu. Additional interviews were conducted again in 2020. Due to COVID-19, online interviews via Weixin were held with a local employee of a wastewater treatment (WWT) plant in Nanjing and two government officials from the Jiangsu local government.

Despite several attempts, it was a struggle to obtain usable data or information because interviewees only talked about the status of local water companies and friendly government policies toward local water companies, while they were reluctant to voice personal opinions or provide internal information. Therefore, the study strived to collect information from various sources, such as newspapers, journals, announcements of Chinese central and local government and water companies, and data from the World Bank, to inversely prove whether interviews were accurate, and to trace the pattern or flow of PPP projects in the Chinese water sector from 1994 to 2014.

PREVIOUS STUDIES ON WATER PUBLIC-PRIVATE PARTNERSHIPS AND URBAN REGIME THEORY

In the early 2000, the literature exploring the Chinese water PPP projects tended to pay close attention to the effectiveness of water PPP projects. The PPP system in urban environmental infrastructure was expected to solve the problem of low efficiency of the “existing government-run system,” in administrative and financial reforms (Chang et al. 2003, 223).

There is an argument that the PPP mode should combine government capital with private capital for the sustainable development of urban infrastructure (Zeng et al., 2008). On the other hand, Leung and Hui (2005) have offered criticism that many urban redevelopment schemes that followed a PPP approach in the 2000s were too market-led. Even though scholars had different perspectives on PPPs in China, they agreed on the need to successfully establish PPPs in China. Later, studies (Cheung 2011; Ke et al. 2009; Sachs et al. 2007; Zhong et al. 2008) analyzed the factors leading to the success or failure of PPPs in urban infrastructure, and some of the studies indicated political, legal, or regulatory risks as major risks in PPPs for the private sector.

These existing studies only provided an overview of the changed contract pattern by region or period in China or analysed certain risk factors for some contracts related to political issues, but they were limited in explaining the roles and changes of elements in the Chinese water market according to political economic changes.

Urban regime theory and growth machine theory (GMT) provide an understanding of the social relationships between coalitions or interests in some urban development projects. Most of the studies dealing with URT or GMT generally discussed complex land markets or urban development projects. Zhu (1999) analysed Chinese land reform through a local growth coalition during the transition period. Several studies (He 2007; He and Wu 2005; Sun and Huang 2016; Wu and He 2005; Wu and Zeng 2011) have also elaborated on Shanghai urban development initiatives with URT and GMT. Zhang (2014) approached the Chinese land market through a growth coalition (three major interest groups), namely, the central government, local government, and local developers.

However, these theories have seldom been applied to a single industry. Arguably, the water PPP mechanism shares similar interests—government and non-governmental actors, such as politicians, developers, and financiers—as long-term projects, such as land development processing projects. This study approached this topic from the assumption that URT facilitates an understanding of the characteristics and relationships of the major actors in water PPPs.

URBAN REGIME THEORY AND THE CHINESE DEVELOPMENTAL STATE

Urban Regime Theory and Economic Elements

Urban regime theory focuses on intricate and multiple actors from a local society (Lauria 1997). URT was developed by Fainstein and Fainstein (1983), Elkin (1985), and Stone (1987) in the 1980s. As Orr and Stoker (1994) popularized the urban regime through the cases of US cities in the 1990s, URT achieved significant prominence in urban politics in the US (Painter 1997). Stone (1989, 1993) formulated the idea in more detail with a valuable study of Atlanta.

The urban regime is flexible and changeable wich explains the collaboration between governments and private actors. Stone (1989) argued that an urban regime is composed of a governing coalition. The governing coalition, as an informal, stable group, influences governing decisions. In a similar view, Mossberger and Stoker (2001, 831) noted that coalitions in urban regimes are distinct compared to “networks” or perfunctory inter-organizational collaborations. The coalition often includes many agents from the public and private sectors to facilitate local economic development.

The flexible and changeable mechanism reflects the features of the coalition relying on the social relationships of its agents (Cox 1997; Fainstein and Fainstein 1983; Logan and Molotch 1987; Molotch 1976; Stone 1987, 1993, 1993). Here, the social relations or governing capacity of the coalition are associated with power. Under the urban regime, power differs from conventional conceptions of power. Stone (1987, 1993) observed that conventional power means “power over” social control, whereas the power in URT entails “power to”. The transition to “power to” is the key to governing coalitions.

Urban regime theory was developed based on a democratic political system and democracy is one of the preconditions of this theory. Elkin (1987) assumed three axes in urban politics: public and private growth alliances, electoral politics, and bureaucratic politics. These three sets of forces interact with one another.

However URT tends to emphasize economic aspects more in order to maintain internal governing coalitions. Coalition members maintain their urban regimes only when they draw implicit social consequences for the achievement of economic goals. Consequently, public and private actors are interdependent for “the wealth-generating resources of the market economy” across institutional boundaries (Mossberger 2009, 41).

The economic element is found in the assumptions of Elkin (1987) and Stone (1993) as the primary axis of the theory. Elkin (1987, 18) started the assumption from “the division of labor between state and market.” This hypothesis regarding URT shares this perspective with Lindblom (1977), who pointed out the theoretical interdependence between the state and the market. Business leaders establish a market system, whereas the government plays a limited role in pursuing economic growth in a capitalist system. Later, Cox (1997) expanded the interpretation that integration between the role of states and capital is achieved through the formation of coalitions and expectations to achieve economic development.

Stone (1993, 6) recognized that local governments receive positive gains through collaboration between governments and non-government actors and the combination of state capacity with non-governmental resources under URT for the fundamental goal of economic development. In turn, he argued that urban politics uses political power to achieve economic development. One assumption is that the urban governing coalition uses political power to facilitate social production. In this context, economic forces play influential roles in political economies and shape urban outcomes.

This argument is supported by a trial to apply URT in the UK. The UK is less decentralized than the US, with relatively fewer autonomous and competitive agents (Cox and Mair, 1988). The attempt to explain the UK’s urban development through URT disregards the political and economic development process in a highly decentralized area. There arises, therefore, the need to find an explanation for China’s administrative system which is similar to that of the US, having an autonomous and decentralized structure.

Discourse on Application to the Chinese Water Sector

The aofrementioned comparative study ofbthe UK implys indirectly that an important precondition of URT is a political and economic environment that emphasizes localism, focusing on local entities, such as the locally base business elite.

In addition, despite the fact that China does not have three axes, this study emphasizes that the economic element or desire to develop at the local level can make up for the vacuum of electoral politics, once the coalition reaches a consensus on PPP for economic development. Although URT purports to build on a theory of democracy, its ultimate focus is on economic development. Of course, this was the starting point to differentiate PPP from Western countries.

Political interaction between public and private actors aims to ensure economic development at the local level. This can be seen in local Chinese areas. The private sector plays a more dominant role in the immature market system in the transition era, and the lack of urban infrastructure has resulted in the formation of a particular regime at the local level in China.

The classification by Krug and Hendrschke (2008) from an economic perspective helps to understand water PPPs in China. The Chinese water sector has undergone a “developmental state urban regime” in the transitional period under an authoritarian culture.

Among the economic urban regimes classified by Krug and Hendrschke (2008), the developmental state’s economic regime refers to a government playing the role of planner and regulator when it comes to resource control. Economic performance in the developmental state economic regime, in particular in China, is the key element defined by the state. The government approaches the water PPP as a sector-specific control and the property rights of the water PPPs are maintained by the public or private actor in accordance with each water PPP contract.

The existing administrative and political systems based on bureaucracy can be supplemented by the absence of the political assumption which is electoral politics. China has an alternative political system to achieve a similar goal without electoral politics. It has developed its regime under an authoritarian state and under-developed voluntary power throughout its transitional period. In other words, the urban regime has developed and transformed in accordance with Chinese culture and traditional management systems.

From a cultural perspective, East Asian features affect the unique Chinese urban regime. The government’s role features in a way that is similar to what Common (2000) noted about East Asian governing features. In East Asia, the government’s role is in national planning and development, even though there are variations between countries in their approach. Common (2000) argued that the development pattern in these regions spreads top down through bureaucracy and the organizational form of industrialization.

Looking closer at the administrative structure, the central government has strengthened the authoritarian governance. While the central government guarantees the local government’s economic policy or autonomy, it closely monitors and controls local governments by retaining key factors for a strongly centralized system.

According to Zhang (2002), the Chinese multi-layered administrative system has brought about a distinctive political dimension in urban growth. The political dimension of local growth encompasses the influences of the central government and local officials who want to appeal to high-level goernment stakeholders in China with respect to economic development.

In addition, the traditional cadre management system in the transitional era and the individual motivation of local government officials converged with local economic development. Beijing still maintains key personnel under the cadre management system, including the promotion of key provincial officials. The yardstick of local economic performance was established by the central government (Chung 1999). Local officials had to demonstrate their capability through economic development in a local area to maintain their status in the future (Chung 1999; Wang 1994). The economic effects of PPP projects were linked with politically personal achievements of local government officials. The PPP related to regime, in collaboration with the private sector, effectively created an environment to achieve economic and individual goals under the limited budgets of the local government.

Chinese institutionalization of the performance system is referred to as “new public management,” which is theoretically based on neo-liberalism. However, the Chinese management system cannot be free from the traditional Chinese cadre management system (Wu and Zhang 2022). The traditional Chinese cadre management system has been shaped by the empowerment of authority, the enforcement of performance contracts, the establishment of quantitative plans, the introduction of competition among the bureaucracy and economic incentives for the achievement of goals (Heimer 2006; Jeong and Lee 2011).

Although Chinese urban development has taken a step toward entrepreneurial urban governance, the trend of marketization has been characterized by strong state intervention (Shen and Wu 2012). The government has established an export-oriented strategy and allocated available resources to improve the possibility of economic development. The government exercises stronger leverage as a planner during the transition period and has made economic plans autocratically.

In addition, the attributes of the water industry itself have evolved under the urban water regime in the Chinese developmental state. Urban regime theory focuses on unequal power distribution in a coalition related to the control of resources. The enlarged role of the local government as a planner and regulator related to resources proceeded not only from the Chinese-style market system under an authoritarian government but also from the ambiguous features of water resources themselves.

Water is a public, collective good and a marketable, private good (Gray 1983; Seppälä et al. 2001). Although water has public features, the processe of water service to the user—starting from design, completion, and implementation to funding—should be approached from an economic point of view by the private actor . However, the blurred lines between the public and private sectors in water infrastructure allows the government to control resources and maintain unequal power distribution between the government and private actors.

Later, political economic changes in the transitional era cemented the developmental state of the urban water regime. The influence of the government sector had a strong impact on the relationships among coalition members of water PPPs.

Locally Based Regime

The regime and governing coalition emerged in the process of handling the fundamental challenges of local government (Zhang 2002). The regime provided conceptual leverage for understanding urban politics and local economic development (Cox 1997).

The question of whether an urban water regime works locally is a prerequisite for considering whether URT can be applied to the Chinese water sector. The urban regime, as defined by Elkin, Imbrocio, and Krasner, effectively explained changes in society and urban politics after economic reform. Elkin’s (1987) entrepreneurial regime pointed out the critical role played by local governments. Similarly, Imbroscio’s (1998) local statist regime indicated a significant enlargement of the local state’s role in the city’s accumulation process. His view was analogous to Krasner’s (1978) notion of a “strong state” at the local level. Later, a locally based regime evolved into the economic regime outlined by Krug and Hendrschke (2008).

China has pursued considerable decentralization, thereby reducing the power of the central government during the marketization process for economic development in terms of ideological and economic dominance. Local governments can set up the most specific or effective economic strategies depending on their local economic environment. In the process of decentralization, Chinese local governments have also developed a strong partnership with private actors, maintained the urban regime at the local level, controlled resources, and coordinated development policy.

Until the mid-2010s, local factors had a greater impact on the decision-making process for resource mobilization than ever before. Consequently, land reform has become an important motivation for stimulating the collective action of a local coalition. The urban water regime is found in provinces that are not directly under the central government’s control or the areas that will be guaranteed autonomy while implementing an aggressive economic policy, for instance, areas such as Jiangsu and Guangdong, which are located along the eastern coastal areas.

The role and characteristics of local governments in China have influenced the formation of the Chinese urban water regime. Local governments have endeavoured to attract private sector players in the infrastructure sector and have generated “extra-budgetary” revenues in an “entrepreneurial” way (Lin 2002; Oksenberg and Tong 1991; Zhu 1999). These policies of local governments have been actively utilized through the PSP of PPPs to attain massive investments in water infrastructure.

Land-Based Regime

Since rapid urbanization and fiscal decentralization began in China, the local government has depended heavily on land-based industrial development for its development. While land-based industrial development in China has changed infrastructure and land property from a non-productive sector to a commodity (Kroeber 2020), land property has become the most critical element in the achievement of economic development through socio-economic changes.

More than anything else, the political and economic changes after the 1990s resulted in increased responsibility of local governments for successful economic achievement. Chinese local governments have pursued a pro-growth strategy as the top priority policy under the central government’s guidelines.

Central and local Chinese governments have established export-oriented strategies and allocated available resources to improve the goal of economic development. Foreign investment and labor forces from other provinces rushed to urban areas. After the 1990s, rapid urbanization accelerated the call for large-scale redevelopment projects with regard to urban infrastructure (Zhang 2002). Consequently, appropriate urban infrastructure became the top priority issue for realizing an export-oriented economic strategy in coastal areas.

The chronic budget deficit of local governments after the 1994 fiscal reform provides an environment in which land becomes an important factor in shaping the urban water regime of local areas. Land exploitation generated a great deal of income enrichment for the city’s financial base, and urban renewal and the acquisition of peri-urban land for urban expansion became the primary driving forces for China’s post-reform urbanization (Zhang 2008).

Upgrading land through urban infrastructure development directly boosted fundamental urban economic development in Jiangsu (Ma et al. 2016). The development of a large-scale industrial city requires the construction of appropriate infrastructure, including the water sector. In Jiangsu, the local government pursued economic development based on foreign direct investment, township and village enterprises (TVEs), and development zones (DZs). Jiangsu Province steadily increased the number of TVEs and DZs, and there were over 140 DZs in this area. According to World Bank data, most water PPP projects in Jiangsu were contracted to promote the expansion of these industrial areas.

The expansion of urban cities was also a favorable option to supplement the local budget (Zhang 2002). As a de facto landowner, a local government benefits from the collection of a large amount of land leasing fees, which have become a primary source of local revenue to promote urban development. In turn, the fees have driven the urban growth machine to capture the exchange value of the city property and maximize financial gains from its assets (Lin 2002; Sun and Huang 2016).

CHINESE URBAN WATER REGIME

Forming a Coalition in the Chinese Water Sector

Ever since the private sector has become a significant axis of the Chinese market system, PSP has expanded into the urban infrastructure sector. The Chinese government has devised and developed a legal framework and business environment as a planner or regulator. The government pursues collaboration with private actors to share risks pertaining to funding and management.

The Urban water regime in the water PPPs consists of financiers, water firms, and government officials. Financiers play a pivotal role in water projects when it comes to “financialization” (Graham and Marvin 2001). The status of financiers differs depending on the developers or their consortiums. In the late 1990s and early 2000s, a successful consortium of advanced-skilled developers and various financiers was the most important and appealing to local governments in China. Foreign water companies could occupy their market share of water PPP projects with various financiers. Foreign financiers, including international financial institutions (IFIs) were engaged in Chinese water projects at the local level.

Water industry firms (developers) contribute to the urban water regime not only by improving the urban infrastructure but also by creating stable employment and enhancing residents’ purchasing power. In this context, the developer has been described as an “economic operator” who can perform all these functions and who is not solely responsible for the technical operation of plants and equipment (Mandri-Perrot and Stiggers 2013). Water industry firms include both foreign and local business actors. They occupy a significant position in the key interest group that participates in the project at different stages, such as design, completion, implementation, and long-term management operation and funding (Klein and Hadjimichael 2003).

China does not allow local governments to directly become stakeholders of special-purpose vehicles (SPVs). A local government authorizes an SPV through a local government-owned company by playing the role of the public sector. Local governments reach cooperation agreements with the private sector. Simultaneously, the local government signs a franchise or service agreement with an SPV (Liu and Xue 2018). Special-purposed vehicles obtain the right to a series of processes for the project, starting from financing, designing, and operating, and transferring the facility to the local government after the end of the contract period. Water industry firms of the governing coalition in water PPPs comprise a state-owned enterprise (SOE) and a private company. Private companies are composed of either local Chinese companies or transnational companies (TNCs) (as see Figure 1).

Strengthening the Chinese Urban Water Regime

While World Bank data2 captures the dramatically decreased number of water PPP projects and contracts by foreign companies, but the weakening influence of the foreign water companies or the number of water PPP projects the World Bank collected should not be explained as losing the urban water regime in China. Water PPP projects have steadily increased after the mid-2000s because of an expansionary policy of the central government by using infrastructure development together with the chronic lack of appropriate facilities and deteriorated water pollution. Journals, newspapers, and announcements of the Chinese government let us guess that the Chinese government has expanded the number of water PPP projects.

This study captures the changes in financiers and developers in water PPP projects in the process of strengthening the Chinese urban water regime (Figure 1). First, financiers saw a major change in water PPP projects in China. The urban water regime in the Chinese developmental state experienced the transition of its governing coalition from being market-oriented to being local state-led, according to the development process of the water PPP for three decades from the 1990s. The funding structure is usually designed according to the politically oriented strategy of both the central and local governments. The changes in financiers played an important role in the process of reasserting the government sectors’ influence in the governing coalition. By extension, local governments’ increasing influence on financers also impacted other key members of the governing coalition.

In general, the way in which many international financial institutions (IFIs) are involved in water PPP projects is complex. The initial water PPPs in China had built a consortium with foreign developers and financiers, and various IFIs had been involved in the projects in a complex way. The massive funding source from the IFIs was also attractive for local governments to offset the budget deficit and improve water infrastructure during the early period.

However, since the mid-2000s, the Chinese governing coalition has experienced a change in the balance of power in the urban water regime due to a decrease in water PPP projects funded by international financial actors. The Chinese government exerts great influence on the Chinese financial market in various ways. Above all, the Chinese financial market, heavily relying on bank loans, became the appropriate channel for maintaining the government’s strong influence in a governing coalition of water PPP projects. The Chinese government plays an influential role in banks’ lending and deposit-taking activities by controlling domestic banks through equity, and the government holds major personnel affairs (Turner et al. 2012). For instance, government officials are deeply involved in allocating many executives or board members to local banks, such as the Bank of Jiangsu. Local banks are de facto subject to the government, and bank loans are more common in the case of infrastructure projects. At the same time, a foreign developer (e.g., SUEZ, Golden State Environment Group, etc.) loses any advantage from the wide financial networks with foreign financiers.

Second, local governments have established their own investment companies and expanded into finance by leveraging the local government financing vehicle (LGFV) (Bulman 2016). Because of the rule prohibiting local governments from receiving direct loans from banks, governments compensated for the budgetary deficits of local governments through LGFVs. For example, Jiangsu Hanrui established by the Zhenjiang municipal government, is wholly owned by the Zhenjiang State-owned Assets Supervision and Administration Commission, and the company is under the administration of the Zhenjiang New Zone Management Committee. The company plays a key role in developing the Jiangsu areas (Bloomberg 2019). There are more than 300 LGFVs in Jiangsu. The Jiangsu LGFV debt, which was less than USD 98 billion in 2008, reached nearly USD 380 billion within four years (Ueda and Gomi 2013).

This system has helped Chinese water companies not only easily borrow money but also gain confidence in competition with foreign water firms. This was one reason why Chinese water companies could expand their market share in the water PPP market.

Changes in financing also had an impact on the change of developers in water PPP projects, which resulted in the consolidation of the government’s influence in this sector. In the late 1990s and early 2000s, water transnational corporations(TNCs) overwhelmed the Chinese water market (Owen 2012). Local governments worried about massive investment and wanted to make up for the deficit from foreign PSP in the early 2000s because of the wide networks of TNCs with foreign financiers and international organizations. The active role played by foreign companies has positively enhanced the urban water infrastructure.

However, the government began to design alternative funding mechanisms and attenuated the major advantage of foreign water companies in terms of fundraising. In addition, an immature market system with a vague legal system made it difficult for developers to seek independent and stable business strategies for foreign water developers. For ten years from the mid-2000s, the number of water PPP projects by a foreign company fell down to nearly zero in Jiangsu.3 Since the mid-2000s, local companies (Anhui Guozhen, Sound Global, Beijing Capital, Kangda EP, Nanjing Golden State Chengbei Waste Water Treatment Company Limited, etc.) have expanded their market share of water PPP projects.

During the interviews, close ties were observed between local governments and domestic water companies. A worker in an SPV even repeated that he was representing government policy because he thought of himself as a government official. Local water company employees described their achievements and expressed confidence based on their trust and dependence on the government several times. Local companies, in turn, utilized their relationships with government officials to expand their businesses. Supported by the government, local water companies could aggressively expand their influence. The support provided by the government made it easy to borrow money from a domestic financing institution and encouraged Chinese water companies’ growth.

Foreign water companies began to establish a deepening localization strategy to make up for their reduced market share. The foreign companies expanded joint ventures (JVs) with local water companies and investment companies funded by the local government or established networks with local banks. It is rare to find a TNC that has exerted its successful business in the Chinese market, except for SUEZ, a French water company that built a complex JV structure in the local water business. SUEZ’s JV consists of a consortium with a local government-owned company. For instance, SUEZ conducted the Yangzhou Water Project at the state-level DZ located in Jiangsu. Sino French Water Development Company Limited (Sino French), which participates in the JV with SUEZ and NWS Holdings, expanded its major business through a new JV strategy with local companies4. SUEZ established a new JV, Yangzhou Sino French Environment Company Limited, with two local partners to expand its business in the Yangzhou area (Jiangsu Province).

This strategy for foreign water developers was successful in maintaining their business in the Chinese water market, but the business system has been limited to propel a foreign-friendly business strategy in the market, and it directly or indirectly tends to strengthen the Chinese government’s influence on foreign companies by increasing the deep involvement of either local companies or local government-owned companies.

CONCLUSION

This paper elaborates on the urban water regime found in water PPP projects in Jiangsu from the 1990s to the mid-2010s. This paper examined various preconditions to apply URT to the Chinese water sector from the political, economic, structural, and cultural aspects and defined the features of the urban water regime in China. In addition, this study observed the background of forming coalitions in the water market and its changes in the relationship among coalitions.

Tracing changes in urban water infrastructure development in China is helpful in inferring the features of the Chinese market and the flow of government policy. Above all, this study pointed out that while China started to collaborate with government and non-government sectors in developing infrastructure, the urban regime in the Chinese water sector developed differently from that in the US. The coalition in the urban regime was formed as developmental state urban regime under an authoritarian regime. Through a series of processes to enhance water infrastructure, the Jiangsu government acted as planner or regulator and designed water PPP projects. In addition, the study emphasized that the influence of governing coalition members or the balance of power among them has changed according to political economic developments, but the changes have fundamentally strengthened the coalition.

The urban water regime in China resulted in its differentiation from developing countries in Southeast Asia, which are highly dependent on official development assistance or foreign aid. Over time, China has built its own funding mechanisms for building urban infrastructure. Adversely, the Chinese government utilized PPP mechanisms to boost local water companies, even though they were latecomers in the world market. Currently, many Chinese water companies are ready to launch their businesses overseas.

Second, the government reasserted the Chinese water urban regime by dominating the water PPP mechanism in financing and supporting policy for domestic companies and solidified the influence in the coalition. During the initial period of water PPPs, foreign investors recognized the Chinese water market as a sufficient potential market because of the effectiveness of water PPPs and their market-oriented features. Outwardly, it seems that China thoroughly maintains an urban water regime based on the deep involvement of both government and non-government actors in the long contract periods of water PPPs. Even though China has one of the biggest water markets in the world and has the expected highest growth rate compared to other countries, the Chinese water market is no longer a foreigner-friendly market. Thames Water, which contracted the first water PPP project in China, has already withdrawn from the Chinese market. In the meantime, most water PPP projects are led by local water developers.

Finally, this study helps to understand government policy and state-owned enterprises (SOEs)’ roles after the SOE reform in that it has a similar pattern to the strengthening influence of the government sector and state-owned enterprises in the Chinese market. While SOEs were urged to maximize their efficiency in management during the SOE reforms, the government shifted its policy and emphasized the effect of SOEs in maximizing resource mobility and maintaining social stability. As a result, SOEs play a decisive role in the allocation of resources in the economy. After the mid-2010s, the importance of SOEs in the market strengthened as the Chinese government pushed trillions of dollars in investment from industry guidance funds between 2010 and 2021 (Rudd 2022).

This paper provides a discussion of a new approach to the water PPP mechanism which the government-centric approach to the water regime in China has facilitated. In addition, LGFVs are a critical issue in the current Chinese economy. this study is also helpful in understanding how LGFVs were used in infrastructure. However, the urban water regime was only elucidated in Jiangsu Province before 2015.The development pattern of water PPP mechanism in Jiangsu Province tends to be shown with those in near coastal area such as Guangdong and Shandong, western areas in China does not share a similar pattern with coastal areas. Due to the lack of administrative capacities in those areas, the central government had developed lately and deeply intervened in the development process of water PPP projects. The central government began to systemically handle PPP projects in all urban infrastructure after the mid-2010s. Therefore, future research is needed to address other provinces or different periods.

Footnote

1 https://ppi.worldbank.org/en/ppidata

2 https://ppi.worldbank.org/en/ppidata

3 https://ppi.worldbank.org/en/ppidata

4 SUEZ, https://www.SUEZ.com/en, SUEZ NWS, https://www.SUEZ-nws.com/en-cn

Figures
Fig. 1. Water PPP Framework in China
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