A Study On The Cooperation Mechanism Between Government And Social Capital In China

Public-Private-Partnership is becoming an important way of financing and managing infrastructure projects. The cooperation between government and private capital is essentially government working with the market. Before being named as PPP, the cooperative relationship between the two sides was known as BOT, BT and etc. Regardless of the name, the key element of the relationship never changes and still holds the gaming theory, based on which the government and social capital would be able to meet their own demand. With the new norms in Chinese economy,market plays much more significant role in allocating the resources, as a result, PPP needs to abide by the rules in market place. Credibility and rule of law are of vitality throughout the operation.However vital is PPP to the urbanization of China, it’s necessary to figure out the strategy of using the tool, in other words, to set the right order between the existing and new construction projects. Given the fact that PPP was introduced to China since 1980 s, we argue that the priority is to deal with the existing ones and by doing so, we will be able to find the efficient way of operating the new projects. In this paper, we use the theory of mechanism design to articulate the principal-agent relationship in PPP and come up with some advice for improving the outcome of the existing PPPs.