An investigation of the build operate transfer approach for infrastucture works in the People's Republic of China

Since the late 1970s, the world has witnessed the rapid changes in the Chinese economy. China's vision is to move rapidly towards being a developed economy. An important part of developing the economy is the need for an efficient and modern infrastructure. The difficulty is that China needs a huge financial investment which the public sector cannot afford because of financial pressures. The country therefore needs to attract investment for infrastructure from the private sector using build operate transfer (BOT) projects. China's transition economy is unique, no country has ever attempted to move from a planned economy to a social market economy. The concept of a private sector is new, hence the investment will need to come from overseas investors who can work in partnership with the Chinese government, Chinese investors and contractors. This approach is not without risks for all parties because of three important factors. Firstly, overseas foreign investment in infrastructure is new for China; secondly, procuring projects using a BUT approach is relatively new throughout the world, there are very few ground rules and there is no model text book approach. In China, procuring BOT projects is very new, hence there is little operating experience on which to work. Thirdly, China's economy is in transition from a centrally planned economy to a socialist market economy which is untried and untested. BUT investors must manage risks over the duration of the concession period taking account of financing risks, design and construction risks, operating revenues, and whole life risks of the facility. Undertaking BUT in any country involves risk; undertaking BOT in China involves many different and substantial risks. The overall aim of the thesis is to investigate the application of BUT in the People's Republic of China, which will assist both the public sector and the private sector to effectively implement the BUT approach for infrastructure projects. The main objective of the research is to give a perspective on the issues facing investors in China and to develop the methodology for the management of risks on BOT projects. The thesis considers the underlying theory and background of BOT, and how it developed. The issues faced by the Chinese economy in transition are considered and how they impact on the Chinese construction industry. The construction industry in China is trying to adapt to the changes which affect every aspect of its operations, ranging from the introduction of competitive tendering to the need to be more commercial and make a profit when delivering projects. A perspective of BOT opportunities in China is provided. Two models are developed to measure BOT opportunities in China. A risk management system is proposed for BOT projects looking at how risks can be identified, analysed, and allocated, including giving an awareness of the special features of the transition risks on BOT projects and upon both the Chinese government and foreign investors.