CHINA Law and Practice Contributed by: Chen Yanhong, Beijing DHH Law Firm
8. Project Finance 8.1 Recent Project Finance Activity
8.4 Foreign Ownership Under the PRC Constitution, the Land Administration Law, the Water Law, and the Mineral Resources Law, foreign entities face multiple restrictions in acquiring real estate and related rights within China. Foreign entities or individuals are prohibited from directly own- ing land; they may only obtain land use rights for a limited term through transfer or lease, in compliance with the Foreign Investment Law and the Negative List. Water resources are owned by the state, and foreign entities may obtain water use rights or extrac- tion permits only upon approval – ownership of water resources is not permitted. Similarly, underground mineral resources are state-owned, and foreign com- panies may acquire exploration or mining rights only through co-operation with Chinese partners (such as joint ventures) and with approval from the Ministry of Natural Resources; key mineral resources are prohib- ited from being developed by wholly foreign-owned enterprises. According to the Special Administrative Measures for Foreign Investment Access (Negative List), foreign investment in sensitive sectors, such as rare earths and energy extraction, is either prohib- ited or restricted. These restrictions indirectly affect the ownership of relevant assets and the design and enforcement of related security arrangements. 8.5 Structuring Deals When structuring deals and choosing the legal form of a project company, compliance and risk isolation are priorities – for example, limited liability companies limit shareholder risk, while partnerships follow dif- ferent tax rules, which must align with the project’s industry (eg, SPVs for infrastructure). Laws govern- ing project companies include company law, tax law, and sector-specific regulations (eg, energy law for energy projects), regulating establishment, operation, and liquidation. Foreign investment restrictions focus on sensitive sectors (defence, critical infrastructure), requiring filing or approval from foreign investment authorities. PBOC regulations mainly cover foreign exchange management, such as complying with for- eign exchange settlement rules for project-related for- eign currency receipts/payments and reporting cross- border capital flows. Relevant treaties like bilateral investment treaties (BITs) may offer foreign-funded projects with protections such as fair treatment and
In the PRC, project finance has been an increasingly important method for financing large-scale infra- structure, industrial, and energy projects. This struc- ture typically relies on the project’s anticipated cash flows, with limited recourse to the sponsors’ balance sheets. Over the past decade, the Chinese govern- ment’s strong focus on infrastructure development, energy transition, and urbanisation has driven signifi- cant growth in project finance activity. 8.2 Public-Private Partnership Transactions Public-private partnership (PPP) transactions in China operate under a regulatory framework that empha- sises standardisation and risk control, with multiple institutional constraints. China lacks a unified PPP law, relying instead on regulations from the Ministry of Finance (MOF) and the National Development and Reform Commission (NDRC). The 2024 Measures for the Administration of Concessionary Operations in Infrastructure and Public Utilities clarify the civil nature of concession agreements, allowing arbitration for commercial disputes, while reserving administra- tive disputes for judicial review. The revised draft of the Government Procurement Law expands oversight to include “quasi-PPP” models (eg, ABO) to prevent circumvention of procurement procedures. 8.3 Governing Law Under the Law on the Application of Laws to Foreign- Related Civil Relations of the PRC, the parties to a contract may choose a foreign law (such as English law or New York law) as the governing law. However, the following exceptions require the application of PRC law: • contracts performed within China involving Sino- foreign joint ventures, Sino-foreign co-operative enterprises, or Sino-foreign co-operation agree- ments for the exploration and development of natural resources; and • projects in sectors such as infrastructure, energy resources, or matters of public interest, where regulatory authorities may mandate the application of PRC law.
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