Filling the Gap: Explaining Foreign Participation in China’s Water PPP Projects from a Local Government Perspective

Foreign capital has dominated over half of the public–private partnership (PPP) projects in developing countries over the past three decades. As such, attracting and regulating foreign participation in water PPP projects presents a critical challenge for both practitioners and scholars. Using a dataset of 2024 water PPP projects from 1994 to 2021, this study investigates foreign participation and its fall in China’s water PPP projects. Our findings highlight three key points: First, the proportion of projects undertaken by foreign capital decreased from 100% to less than 0.5%, with Chinese domestic capital taking its place. Second, resource dependence on foreign capital and the local government’s need for control lead to four types of foreign participation: financing water plants under user-pays, financing and operating water utilities under government-pays, participating with mainly an O&M role, and nearly no participation. Third, a better balance between efficiency gains and control needs via cooperation with domestic capital by local governments had driven the decline in foreign participation. This study makes two key contributions: (1) it is one of the pioneer studies on systematically tracing the evolution of foreign participation in PPP projects, and (2) it explains the fall of foreign participation from a local government perspective, complementing market-based explanations.