Integrating the Sustainable Development Goals (SDGs) in the Regulation of Public-Private Partnerships (PPPs) in the Belt and Road Countries: A Chinese Perspective

In 2013, China put forward the “One Belt One Road Initiative”, also known as the “Belt and Road Initiative” (BRI). While reflecting China’s glorious ancient history, the BRI has two main components: the Silk Road Economic Belt and the 21st Century Maritime Silk Road, covering nearly 70 countries in Asia, Africa and Europe. The BRI aims to create a platform for regional cooperation and connectivity, including trade, investment, financial, social and cultural cooperation. Since its initiation, the BRI has not only become a highlight in China’s policy-making, but also attracted wide international attention.

Encouraging investments in BRI countries is a major way of implementing the BRI. Such investments often go with huge financial need, especially in the infrastructure sector. To help feed such need, various steps have been taken upon China’s initiative. The establishment of the Silk Road Fund in 2014 and the opening of the Asian Infrastructure Investment Bank (AIIB) in 2016 are typical examples. China also promotes public-private partnerships (PPPs) and expects PPPs to be a major investment model in BRI countries. The term PPP typically refers to a long-term contract between a government entity and a private party for the provision of public service and the development of public infrastructure, such as build-operate-transfer (BOT).

China has issued a number of regulatory documents to regulate and promote PPP. A key document is the Guiding Opinions on Carrying out Public-Private Partnership[1], issued by the National Development and Reform Commission (NDRC) in 2014, which helped lay down the regulatory principles and framework for PPP. The Ministry of Finance, the NDRC and the Central Bank of China jointly issued the Guiding Opinions on Promoting Public-Private-Partnership in Public Service Industry[2] in 2015 to further encourage PPPs. Although these documents are designed with PPPs in China in mind, they can have profound impacts on PPPs involving Chinese investors in BRI countries. In addition, an interagency mechanism has also been established to coordinate government organs, especially the NDRC and the Ministry of Finance, in promoting PPPs in BRI countries.

Unlike some developed economies where PPPs has been widely used, China and many BRI countries are not quite familiar with PPPs. Also, many BRI countries are politically unstable, economically underdeveloped and environmentally vulnerable. Such a situation necessitates proper regulation of PPPs in these countries.

Nowadays sustainable development goals (SDGs) are recognized as an important factor in policy-making and economic governance. It is unsurprising that the potential synergies of PPPs and SDGs in BRI countries have drawn broad attention. Indeed, PPPs in China and BRI countries may provoke sustainability concerns, and there are good reasons for these countries to integrate SDGs in PPPs regulation. First, many BRI countries face profound sustainability challenges, while their laws and policies, especially the implementation thereof often appear weak in promoting SDGs. Second, China has not yet established a regulatory framework to supervise overseas operations of Chinese investors. Third, Chinese enterprises have not paid much attention to SDGs and CSR issues in their business conducts until recently. Fourth, as PPPs in BRI countries sometimes lack transparency and openness, it is difficult to ensure fair bidding, responsible conducts and benefit sharing in investment projects.

Adherence to SDGs in PPPs is imperative to BRI countries. The following methods could help these countries in achieving this goal. First, clear and enforceable sustainability rules for PPPs should be promulgated in laws and policies at national and international levels. In this regard, a recent relevant development is the adoption of the non-binding G20 Guiding Principles for Global Investment Policymaking at G20 Hangzhou Summit under China’s presidency in 2016, which states that investment policies should be consistent with the objectives of sustainable development and inclusive growth. This statement makes clear that the SDGs should be considered in investment policy-making. Despite the growing consensus, it remains unclear whether and how China and BRI countries would deal with SDGs in PPP regulation. Enhanced efforts are needed for consensus-building, policy-designing and law-making.

Second, since PPPs focus on investment cooperation and Chinese investors are major players in PPPs in BRI countries, China should strengthen supervision of its investors to ensure their compliance with sustainability rules. In recent years, the SDGs have entered into China’s investment policy-making. Notably, the Ministry of Commerce (MOCFOM) issued the Measures for Overseas Investment Management[3] in 2014, and the NDRC issued the Measures for Regulation of Overseas Investments of Enterprises[4] in 2017. Both measures require Chinese enterprises and their overseas investments to respect the social order of the host States, protect the environment and labor rights, and undertake corporate social responsibilities. Also, as many Chinese investors in BRI countries are State-owned/controlled enterprises, supervision over these enterprises should also be intensified by China’s State-owned Assets Supervision and Administrative Commission (SASAC).

Third, international trade and investment treaties should also be improved to be a helpful tool in promoting the SDGs in PPPs in BRI countries. China has signed 56 bilateral investment treaties and 11 free trade agreements with BRI countries. Since these treaties aim primary at protecting foreign investments and promoting trade relations, limited sustainable development provisions are incorporated, such as environmental, labor rights and public health provisions. Therefore, these treaties are insufficiently helpful in promoting the SDGs. As China is upgrading its trade and investment treaties now, it would be helpful to negotiate more and enforceable sustainable development provisions in treaties with BRI countries.

Promoting PPPs is a feasible and sensible policy option for China and many BRI countries in implementing the BRI. Yet, while recognizing its merits, PPPs should not be perceived and used only as a financial tool. Importantly, since PPPs involve governments and cater for public purpose, it should also be deemed as a governance model. It is thus necessary to ensure that PPP policies are in compliance with SDGs and rule-of-law standards. This is not only beneficial to the social and economic development of BRI countries, but also helps keep the BRI legitimate, attractive and sustainable in the long run and at the global level.

[1] For referential English version please check

[2] For referential English version please check

[3] For English version please check

[4] As this instrument only comes into force in 2018, no English translation is available.