Path Dependence in Financing Urban Infrastructure Development in China: 1949-2016

In the past few decades, urban infrastructures in China have seen an enormous upgrade, and due to large-scale urbanization many more investments are due in the coming years. In order to supplement public funding, Public Private Partnerships (PPP) and municipal bonds have recently grown popular in China. The introduction of this new policy does not occur in a void but should be understood as the path-dependent consequence of a historical evolution of funding arrangements for urban development. How have Chinese governments traditionally arranged financing for these extensive investments and how has the emphasis in funding sources shifted over time? We argue that the evolution of urban development financing has gone through three phases (planned economy, reform and pilot, and socialist market economy), each with different emphasis in financial sources. Our analysis demonstrates how weaknesses in earlier phases present challenges that new solutions in later phases are aimed to address.