Did China's strengthened regulation on public-private partnership promote the participation of private capital?

The Public-Private Partnership (PPP) is an important tool for local governments to provide public goods in China, but it suffers from various problems in the practice, especially the lack of private capital in the PPP projects. Both the literature and the industry called for a revision of PPP policies to encourage participation from the private sector and to prevent the local debt crisis. A series of policies that aimed at tightening the regulation and supervision of the PPP were implemented in 2017 and 2018. To investigate the effectiveness of this policy, our research applies the generalized Difference-in-Difference methodology to a panel data of Chinese provinces between 2016 and 2021. Our findings reveal that the strengthened PPP regulatory policies boosted the participation of private capital in relation to the state-owned capital. Furthermore, this policy effect was stronger in the less economic or financial developed regions in the beginning stage of implementation. In the long run, however, the more developed regions have the institutional and economic/financial support to maintain the effect of strengthened PPP regulatory policies. This valuable evidence from China provides important policy implications for the application of the PPP model.