Does Municipal Management Capacity Matter? Competitive versus Negotiated Procurement in China’s Public-Private Partnerships

Abstract

This study attempts to understand how China’s municipal governments select procurement methods in PPP projects and what factors influence their decisions. In particular, we focus on municipal management capacity, investigating the relationship between municipal management capacity and PPP procurement methods. Using a comprehensive pooled cross-sectional dataset at the municipal level, with PPP data that are newly available from the website of China PPP Center under the Ministry of Finance, we find that management capacity does matter for procurement method decisions. Specifically, fiscal capacity and organizational capacity (measured as government size and population size) and also prior PPP experience (measured as the length of time, in both years and logged number of days, since the city’s first PPP project) of the municipal government will lead to the selection of more competitive and market-led procurement methods; in contrast, complexity of contract types significantly reduces the probability that a municipality selects a competitive procurement method. This empirical study helps understand the decision-making mechanism and the managerial behavior of municipal governments in China’s recent PPP development. The findings from this study provide policy insight into the regulation and administration of PPPs in China.