A PPP Framework for Public Housing in China

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Table of Contents

Introduction
Background Information
Conceptual Framework
General Principle for Public Private Partnership Frameworks
Lessons from PPP Projects in Developing Countries
The Role of Participating Parties
Financial Resources
Key Risks and their Mitigation
Conclusion
Works Cited

Introduction

Many governments are integrating Public Private Partnerships into their development agendas. Among the areas where Public Private Partnerships (PPP) are leading to the growth and development of several economies includes the housing sector (Kabir 565). A partnership between the government and the private sector in the direction of implementing public development presents numerous advantages.

Projects under a PPP partnership can benefit from the facilitative capacity of a given government. On the other hand, PPP projects can benefit from the highly skilled expertise of private companies, which is often highly effective in completing given projects within expected quality standards. Moreover, Projects placed under a private partnership framework can easily attract international funding.

Over the last three decades, China has experienced tremendous economic growth, which has led to an expansion of her middle class. The Chinese government has embarked to implement housing projects under a PPP framework to mitigate housing shortage. Here, PPP frameworks need to integrate unique dynamics in China as well as learn from previous experiences elsewhere (Smith 8).

Background Information

The Chinese economy has maintained a steady economic growth over the past two decades. A steady economic growth in China has mainly resulted from government initiatives that allowed the participation of the private sector (Kabir 565). An able leadership designed to pass economic benefits to the Chinese populace from the government is ensuring a rising middle class in China.

The demand for public housing in China is thus on the increase mainly because of a rising middle class who have capacity to spend (Smith 8). The real estate industry in China is seeing so much activity that some economists are now fearing for an economic ‘bubble’ there (as it happened in Dubai).

Fortunately, the Chinese government is so far showing great leadership, which includes implementing economic measures to mitigate such fears (Smith 8). Public Private Partnerships includes cooperation between governments/public institutions and the Private for the sole purpose of attaining mutual benefits for both parties (Payne 124).

Projects completed under PPP framework should therefore avail quality services at an affordable rate to the public. Private companies can benefit from PPP projects by acquiring an opportunity to make profits and participate in public development as well. An approach of involving private companies in public participation is well documented in western countries.

Here, ancient governments, including the kingdoms of Greece and Rome, allowed private companies to participate in public development projects (Smith 8). However, past Chinese governments mainly remained reserved towards the integration of the private sector into their economies until the start of the recent economic reforms.

Multiple facets of the Chinese economy, including housing and infrastructure, are on a steady increase because of fruitful participation from private companies (because of economic reforms allowing their participation) (Payne 124). An interesting phenomenon present in China, which aligns well with a PPP framework, is the background participation of the Chinese government in every socio-economic aspect of the Chinese society (Kabir 565).

Therefore, although private companies participate in expanding the Chinese economy, they must operate within the goals that are set out by an active and able government desperate to control the nature of economic changes passed down to the Chinese society (Payne 124).

Conceptual Framework

In summary, a successful PPP framework for developing public housing should integrate with an array of critical socio-economic parameters. First, it (PPP framework) should provide adequate housing units to the Chinese population. Provided housing units must be of high quality and eco-friendly (Payne 124). Housing units should address the demands of different segments in the Chinese society including those who are poor.

Besides, housing units must align with the policies of the Chinese government on urban planning and development (Kabir 565). Here, housing units need to integrate technologies that are helpful in tackling urban challenges. Some of these urban challenges include the need to reduce carbon emissions, develop social amenities and ensure that critical infrastructure integrates into housing estates (Smith 8).

Besides, a successful PPP framework would consider critical aspects in the Chinese socio-economic dynamics to develop a model that would easily attract funding, seam with government policies, and respond to market needs (Kabir 566). It is also important for the Chinese government to implement measures that would mitigate the possibility of an economic pressure because of hyped activity in the real estate market (Smith 8). Thus, the supply of housing units must complement the Chinese economy.

Socio- economic factors includes elements like the varying capacity of society segments to afford housing units. Other factors include the need to complement real estate development with the Chinese economy (Smith 8). Here, it is also important to consider the cultural and spending behaviors of the Chinese populace in real estate (Payne 128).

Since the supply of housing units is mainly an endeavor to meet a social need for housing within economic constraints, the consideration of socio-economic factors is critical for the development of sustainable housing projects within China (Kabir 567). The supply of housing units must meet the needs of various economical segments within the Chinese society.

Both the poor and the rich need to access public housing. It is also critical for PPP frameworks for public housing to design plans that would meet projected shortfalls in the supply of housing units (Kabir 567). Here, projected demands must align with the government plan for urban planning and public hosing (Payne 128).

To prevent unplanned settlement, the Chinese government is developing models for urban growth and planning. As the Chinese economy continues to expand, more people are settling in urban centers. The Chinese government must continue to ensure the provision of quality housing for incoming urban settlers (Payne 128).

The incorporation of eco-friendly technologies such as water recycling and the supply of clean energy rank among important opportunities presented to the Chinese government through PPP frameworks for public housing (Smith 8). As it has happened in other cities like London, PPP frameworks are using innovation to develop a solution to social and environmental challenges. Such an approach would provide sustainable housing to The Chinese populace (Kabir 567).

General Principle for Public Private Partnership Frameworks

A Public Private Partnership is a mutual agreement between a government/public institution and private companies to work together for mutual benefits. Here, a government/public institution involves the services of a private company to undertake projects designed to benefit the public (Kabir 567).

Usually, Public Private Partnerships involve elaborate plans and agreements on project details, the roles of both parties, finding, among other details. Before the implementation of a PPP project, the government must enter into a contract agreement with the participating private company.

The contract details the responsibilities, expectations, and the sharing of risks between both parties (Smith 8). Due to the emerging trend of partnership between governments and private companies, a number of international organizations, such as FIDIC, have organized for a standard form of contract that can guide PPP agreements (Kabir 567).

Although a number of economists are against the use of a PPP framework to provide public housing, arguing that such a direction is similar to the capitalization (hence, exploitation) of the private sector, no public sector can meet the housing demands of a given society on its own (Payne 128).

Recognizing the importance of PPP in economic development, many governments are collaborating with private companies for the economic wellbeing of their citizens (Smith 8). Governments accrue numerous benefits because of collaborating with private companies.

Projects implemented under a viable PPP arrangement can easily attract funding from the international bank, among other financial partners (Payne 128). Besides, a PPP framework avails the skills, talents, and the capacity of private companies to the needs of the public. Private companies of international reputation are showing great efficiency in implementing public projects (Smith 8).

Developing countries that have a limited capacity in technology are benefiting from the services of international companies, which have a capacity to implement complex projects within developing countries. Under a PPP framework, the role of the government is mainly facilitative (Payne 128). For example, the government can provide resources, negotiate for resources, and provide land, among other facilitative requirements.

One of the main challenges that limit the capacity of PPP projects includes arising risks in the course of implementing public projects. It is therefore necessary to ensure that contracts allocate risks equally to the government and private companies to mitigate future conflicts (Kabir 567).

Rapid industrialization and economic growth are contributing to large scale urbanization in China. Such a direction necessitates a rapid response from the Chinese government to supply public housing and control urbanization.

The huge demand for public housing makes it important for the Chinese government to develop an environment that would help to attract and avail resources for the development of the real estate (Payne 128). The Chinese government is spending huge resources on the development of housing units for her populace (Kabir 567).

Lessons from PPP Projects in Developing Countries

Many developing countries are facing multiple challenges in the provision of public housing. Here, among the challenges that are facing many developing countries is a failure to meet demand targets for public housing (Smith 8).

Although there is a slight participation of the private sector in government projects for public housing, PPP projects for housing are inadequate to meet the high demand for public housing there (Kabir 567). The result of such a shortcoming is an increase in the number of private developers; thus, leading to high prices for completed units (Shelter Afrique 2).

High real estate prices in developing countries are preventing a considerable segment of the poor and the middle class from accessing decent housing. Poor housing in developing countries is exacerbated further by high levels of corruption, which prevent the few PPP projects from benefiting the poor. Rich politicians grab a number of housing projects for the poor (Payne 128).

The use of outdated technologies contributes to high construction costs for housing units in many developing countries (Shelter Afrique 2).

Such a direction is mainly because of outdated legal requirements for house construction. For example, the specifications of construction requirements in many African countries, such as wall thickness, are based on outdated requirements instituted by previous colonial governments (Shelter Afrique 2).

Such specifications are not in tandem with new technologies that are more affordable, time saving and efficient for the construction of housing units; thus, resulting in affordable housing units (Kabir 567).

Although the Chinese government is highly efficient when it comes to implementing appropriate policies for public housing, the repercussions of corruption, poor planning, and poor policies on public housing in developing countries should always remind the Chinese government on the need to remain resilient and focused (Smith 8).

Apart from using the latest technologies to avail cheaper housing units to her populace, the Chinese government should exploit her technological capacity to develop new technological approaches that can help to lower housing costs further. Besides, technological innovations would also help to develop eco-friendly units (Payne 128).

Many developing countries are unable to provide quality housing units to their citizens. Even PPP projects are failing to meet standard thresholds of quality. Factors that contribute to poor quality housing in many developing countries include corruption, poor legislation, and poor implementation of legislation requirements.

Here, the Chinese government should continue to play a key role in supporting PPP frameworks by designing and implementing specific policies that would ensure that quality standards are met. Apart from the quality of completed units, the wholesome quality of housing projects is also crucial. Here, elements like the capacity of a housing project to integrate with eco-friendly technologies as well as to provide critical social amenities should determine the wholesome quality of housing project (Payne 128).

Many housing projects in developing countries cannot meet the standards of wholesome quality. It is therefore crucial for the Chinese government to align PPP projects in the housing industry with fruitful policies that would guarantee wholesome quality (Kabir 567). Besides, wholesome quality should consider the capacity of buildings to withstand natural disasters such as earthquakes.

Due to frequent earthquakes in China, including the disastrous 2008 earthquake, China needs to integrate a high level of safety consciousness in her real estate industry. A number of legislations that specify safety standards to mitigate natural disasters are in place. Ensuring the implementation of these safety standards will help to mitigate the effect of natural disasters (Aggarwal et al. 51).

As it is evident in many developing countries, the adoption of PPP approaches is not enough (on its own) to resolve housing challenges. Apart from embracing PPP approaches, governments need to be aware of emerging trends, changing needs; thus, changing roles for the government.

Besides, governments need to participate actively in PPP projects in the direction of attaining clear objectives designed to address housing shortages, urban challenges, among other challenges in the housing sector (Aggarwal et al. 51). Trends in the development of housing units in many developing countries indicate that many governments there are failing to understand their changing roles.

Earlier housing projects (during the 1960’s) in Nigeria resulted from an attempt by the government to transfer slum dwellers to new settlements because of disease outbreaks (Shelter Afrique 2). On the other hand, recent PPP projects in Nigeria focus on providing houses to the top middle class (Smith 8). Such a scenario is observable in other developing countries such as India and Kenya (Shelter Afrique 2). Here, housing units completed under the PPP program are often expensive and of low quality.

The apparent historical disconnect in providing public housing by governments from developing countries can be resolved through a clear understanding and a commitment to tackle the emerging roles of governments in public housing (Shelter Afrique 2).

For example, although the need to provide adequate housing to both the middle class as well as the poor is apparent, many developing countries are not responding to this new reality (Aggarwal et al. 51).

The Role of Participating Parties

Perhaps, the main responsibility of developing an appropriate framework for public housing lies with governments. In the first place, a decision to cooperate with private companies in the housing sector by a given government must precede a PPP framework.

Having initiated economic reforms that allowed the participation of private companies in her economy, the Chinese government is going ahead to work with the private sector under a PPP framework to provide public housing (Aggarwal et al. 51). Apart from participating in the drafting of PPP contracts, the Chinese government is responsible for the development of supportive policies such as urban planning, required for successful implementation of PPP projects (Aggarwal et al. 51).

Here, fruitful policies must ensure a steady delivery of affordable and quality housing to all citizens. Besides, fruitful policies must ensure that important societal needs, such as social amenities, education, and transport incorporate into housing projects that are within PPP frameworks. In addition, government policies on PPP housing must consider future population growths and the need to preserve the environment (Aggarwal et al. 51).

A number of government institutions have the responsibility of monitoring the progress of PPP housing projects as well as protecting the interests of participating parties. The Chinese government is also participating in funding many PPP housing projects. Moreover, the Chinese government is responsible for availing required resources, such as land, for the construction of hosing units.

The role of contractors in PPP housing projects is mainly to implement housing projects as specified by the government. Projects must adhere to government specifications on quality and timelines. Contractors can also participate in the design of housing projects that are under a PPP framework (Aggarwal et al. 51).

Such an opportunity is enabling contractors to incorporate innovative approaches designed to solve urban challenges into their housing projects. Green estates that are coming up in London, St Paulo, among other areas are because of innovative approaches in house construction (Smith 8). If they hold some shares in a given PPP project, contractors may also participate in the funding of PPP projects.

Due to the presence of many construction opportunities in China, many domestic firms that can perform construction tasks have evolved. These firms are not just participating in the development of housing projects for the local market; rather, they are also winning multiple construction bids in Africa and other areas.

Adequate funding is prerequisite for the successful implementation of PPP projects. Most of this funding comes from the government, developers, service institutions, among other investors (Aggarwal et al. 51). Despite funding PPP housing projects, Investors may participate in the marketing of housing units.

Besides, investors may be required to perform other roles as specified in the contractual agreement. Also, Investors will often participate in ascertaining the quality of completed housing units. Moreover, investors will often participate in designing and approving design plans for PPP housing projects (Smith 8).

Financial Resources

A high economic growth over the past three decades is resulting in a significant expansion of the Chinese economy. The finance industry is among the most important areas that benefit from the expansion of the Chinese economy.

Due to a high economic growth, which is expanding the base of the middle class within China (who have a capacity to afford housing units that supplied to the market), there is a projected high return in real estate development (Aggarwal et al. 51). Local and foreign banks are thus providing a portion of the funding that is required for the implementation of PPP housing projects there.

However, majority of PPP housing projects in China receive funding from the Chinese government. Due to a rising economy and robust planning, the Chinese government is financially empowered to fund numerous housing projects for her populace. Independent investors are also participating in funding PPP projects within China.

Key Risks and their Mitigation

The danger of natural disasters is among the key risks that need consideration while investing in PPP projects within China. The 2008 earthquake is one example among several natural disasters that threaten the real estate sector in China. Multiple earthquakes, landslides, a serious flooding rank among the most important risks that need consideration ( Aggarwal et al. 51).

One of the ways of mitigating the risk of natural disasters is to construct houses that are suited to withstand the destructive effects of natural disasters. However, the scale of the unforeseen disasters may be too high to counter using appropriate construction techniques (Shelter Afrique 2).

Such a direction is prevailing among investors to insure PPP housing projects against natural disasters. Real estate investors can thus mitigate the risk of natural disasters by insuring their properties. It is also fruitful for investors to build properties in multiple geographical locations within China in order to reduce the risk of losing all of their investments during an attack (Smith 8).

The fear of a ‘bubble’ burst is also among a key risk that is worth considering. A number of economists are predicting a ‘bubble’ burst in the Chinese real estate market due to hyped economic activity there (Smith 8). Here, a rising economy is significantly increasing the spending capacity of the Chinese populace; hence, leading to high property prices.

There is fear that the current high property prices in the Chinese economy are unsustainable and that it is only a matter of time before the prices cliff downwards. Such a situation could lead to an economic crisis of a greater scale than that witnessed in Dubai (Aggarwal et al. 51). The Chinese government is trying to mitigate ‘bubble’ burst fears by introducing multiple measures, such as increasing the lending rate, designed to lower the spending rate.

The possibility of a ‘bubble’ burst is dependant on economic dynamics in China. The reaction of the Chinese government in stabilizing the economy can help to mitigate the dangers of an economic crisis. The possibility of a political uprising due to the absence of strong democratic institutions in China ranks is also a slight risk that is worth to consider (Aggarwal et al. 51).

The Development Environment

A number of factors are helping to facilitate the construction of housing units under a PPP framework in China. For example, the availability of cheap constructional materials from Chinese industries is helping to lower the construction costs of housing units (Payne 124).

Besides, the presence of cheap labor and construction machinery is also contributing to lower development expenses for housing units in China. Moreover, controlled capitalization is helping the Chinese government to set aside adequate land resources for the development of PPP housing projects (Aggarwal et al. 51).

Conclusion

Over the last three decades, China has experienced tremendous economic growth, which has led to an expansion of her middle class. At the same time, financial institutions within China are increasing their lending capacities; thus, availing huge resources for the development of the real estate industry.

Without the intervention of the Chinese government to provide affordable housing to her populace, the direction above will create a housing crisis. The interaction of a rising economy and a borrowing populace would create a housing crisis.

One of the ways in which the Chinese government can avoid a housing crisis is to ensure that the general populace can access affordable and quality housing supplied through a PPP framework. Unlike many developing countries, the Chinese government is showing great resilience and leadership in developing a suitable housing PPP program for her populace. Multiple economic dynamics in China are contributing to a vibrant real estate in China.

Works Cited

Aggarwal, Martin. 2010. PPP in Housing. PDF file 31 Oct, 2012 <https://www.crisil.com>

Kabir, Obinna “Low-cost technology and mass housing system in Nigerian housing” Journal of Applied Sciences, 4.4 (2008): 565–567. Print

Payne, George. Making common ground: Public-private partnerships in land for Housing London: Intermediate Technology Publications, 2008 Print

Shelter Afrique. Financing for Increased Access to Housing in Africa PDF file 31 Oct 2012. <http://www.shelterafrique.org/>

Smith, Adam. “Housing the world’s poor: The four essential roles of government” Harvard International Review 11.3 (2006): 2-12. Print

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