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SWOT analysis of domestic private enterprises in developing infrastructure projects in China


Yongjian Ke, Xinbo Zhao, Yingying Wang and ShouQing Wang
Department of Construction Management, Tsinghua University, Beijing, China
Abstract
Purpose The purpose of this paper is to help domestic private enterprises (DPEs) identify their strengths, weaknesses, opportunities, and threats (SWOT) in developing infrastructure projects in China. Design/methodology/approach The paper draws on extensive literature reviews coupled with brainstorming and interviews methodologies to compile a list of SWOT factors for DPEs in developing infrastructures. To validate the signicance of the identied SWOT list, a questionnaire survey is thus carried out. Findings The paper identies 16 strengths, 15 weaknesses, 16 opportunities, and 21 threats for DPEs in developing infrastructure projects in China. The opinions of respondents from different sectors are sought and evaluated to obtain the relative signicance of these factors. A set of major SWOT hypotheses is then derived using factor analysis. Research limitations/implications The paper is limited to identifying SWOT factors in common, therefore the next step should be proposing an adjustment framework to support decision marking. Practical implications These ndings should provide a valuable reference not only for DPEs but also for foreign investors who are planning to invest in infrastructure projects in China. Originality/value The investors in both rounds of infrastructure investments in China in the last two decades have limitations. Foreign investors acting as the major player in the rst round usually charge higher and prefer operating projects in more developed regions, while state-owned enterprises as the principal player in the second round are inefcient in the operation and management, which largely restrained the advantages of public-private partnership model. Therefore, there is an urgent need to explore the potential of DPEs, another potential major player in developing infrastructure projects. To this end, this paper provides valuable information through a comprehensive SWOT analysis to the DPEs. Keywords SWOT analysis, Private sector organizations, Construction operations, China, Partnership Paper type Research paper

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Journal of Financial Management of Property and Construction Vol. 14 No. 2, 2009 pp. 152-170 q Emerald Group Publishing Limited 1366-4387 DOI 10.1108/13664380910977600

1. Introduction Public-private partnerships (PPPs) are arrangements where the public and private sectors both bring their complementary skills to a project, with varying levels of involvement and responsibility, for the purpose of providing public services or projects (Efciency Unit, 2005). In recent years, there have been increasing campaigns for PPP in the development and operation of infrastructure projects. PPPs present a number of recognized advantages, which include the ability to raise additional nance, bring the
The authors gratefully thank the National Natural Science Foundation of China (project nos 70471004 and 70731160634) for providing funding to support this research. Those who kindly participated in the survey are acknowledged with sincere thanks.

private sector operational efciencies, reduce cost, and increase quality to the community (European Commission, 2003). In many developing countries, PPP nancing modalities, with the ability of attracting foreign and private capital in the development of infrastructure, have been identied as innovative tools for nancing major infrastructure projects. In China, the tremendous economic growth has resulted in an immense demand for basic infrastructure like roads, ports, and power generation facilities. To meet the development needs, the Chinese Government has promulgated some regulations for private investment in public utilities one after the other, and is moving towards adopting international contractual practices and working out an equitable risk-sharing scheme. Based on the above, the aim of this paper is to help domestic private enterprises (DPEs) identify their strengths, weaknesses, opportunities, and threats (SWOT) in developing infrastructure projects in China. 2. Infrastructure development in China Private participation in infrastructure development in China was rst seen in power industry in 1980s. ShenZhen Shajiao B Power Plant, which came to operation in 1988, is regarded as the rst build-operate-transfer (BOT) project. However, government and commercial banks in Shajiao B project took over too many risks due to the lack of BOT experience. Thereafter, several state-approved pilot BOT projects have been awarded in order to introduce BOT on a larger scale since late 1996, such as Laibin B power project, Dachang water project and Changsha power project. Since then, the involvement of private investors in infrastructural development of public utilities has improved greatly. However, at the end of last decade, the central government invested huge amounts of treasury bonds in infrastructure construction, and was determined to clean up the illegal projects, which lead to a termination of the rst round of private investment (Shen et al., 2005). Stepping into the twenty-rst century, the bottleneck effect of infrastructure shortage for the economy emerged and imposed budgetary pressure on the government. The investment in infrastructure development could not be completed by the government alone, which provides a good business opportunity for the private investors. In Beijing alone, some of the recently implemented PPP projects include Metro Line 4 Project, Lugouqiao Sewage Treatment Plant Phase 1 Project, Gaoantun Waste-to-Energy Plant, National Stadium Project, the Concession Project of natural gas in the East New District of YiZhuang Road, and, etc. (Beijing Municipal Commission of Development and Reform BMCDR, 2005). Wang (2005) pointed out that a new round of private investment in public utilities has started and the state-owned enterprises are the major player. However, it could be found that the investors in both rounds of infrastructure investments in last two decades have limitations (Wu, 2007). Foreign investors acting as the major player in the rst round usually charged higher and preferred operating projects in more developed regions in China, while state-owned enterprises as the principle player in the second round were inefcient in the operation and management, which largely restrained the advantages of concession model. Therefore, there is an urgent need to examine the situation and future of DPEs, another potential major player in the economic market, in developing infrastructure projects.

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3. Research methodology The specic methodology of this research paper undertaken in China is based on a literature review, a brainstorming session, e-mail interviews and a questionnaire survey, as graphically presented in Figure 1. As shown in Figure 1, the research began with a literature review to compile a list of strengths and weaknesses of DPEs in developing infrastructures and a list of opportunities and threats that DPEs are likely to meet. The list of SWOT identied was then complemented and ltered after a brainstorming discussion among the research team members and e-mail interviews with some experienced academicians. To validate the signicance of the identied SWOT list, a questionnaire survey was therefore carried out. After analyzing the survey results, the SWOT of DPEs in developing infrastructure projects were improved and documented. The questionnaire was designed based on the knowledge obtained from literature review, brainstorming discussion and interviews. The questionnaire encompasses all potential SWOT items that are likely to be encountered in privatized infrastructure projects in China (Table I). To improve the precision and reliability of the survey, a ve-degree Likert scale for the signicance of the SWOT list was adopted. Respondents were requested to indicate the signicance with 1 being not important at all, 2 being not important, 3 being neutral, 4 being important, and 5 being exceptionally important.

Literature review Identify potential SWOT Gain experiences in this field

Interviews Revise the SWOT list Advise on the research method

Brainstorm Identify potential SWOT Advise on the research method

Pilot questionnaire Empirical questionnaire

Data analysis Mean ranking One way ANOVA Factor analysis

Figure 1. Research framework for this paper

Source: Chan et al. (2004)

Conclusions

SWOT 1. Strengths

ID S1 S2 S3 S4 S5 S6 S7 S8 S9 S10 S11 S12 S13 S14 S15 S16 W1 W2 W3 W4 W5 W6 W7 W8 W9 W10 W11 W12 W13 W14 W15 O1 O2 O3 O4 O5 O6 O7 O8 O9 O10 O11 O12 O13 O14 O15 O16 T1 T2 T3

Descriptions High operation level Capital/resource abundance Clear property rights High quality of staffs/managers Innovative Low manufacture/operation cost Active High management efciency Flexible organization Strong adaptive capacity Favorable management structure Rich market experience Service network adapted to domestic market Effective resource management Independent decision making High market sensitiveness Limited understanding of infrastructures Poor coordination ability Poor nancing ability Restrained investment space Lack of bargaining power with government Long negotiation time High negotiation cost Lack of PPP experience Low risk resistance capacity Small scale Loose organization structure Low competitive power Nonstandard operation behavior Lack of long sight development strategy High debt-equity ratio Favorable changes of nancing policy Successful international PPP implementations Increasing demand of government supervision Increasing demand of innovative technologies Enormous demand of public infrastructures Budgetary pressure to the government Governments incentives for PPP Low efciency of government investment Promulgation of relative PPP laws/regulations Sustainable development of national economy Further improvement in living standards Increasing understanding of PPP in the industry Low efciency of government operation Stable industry development Positive policy changes for non-public capital Respectability of private enterprises Availability of nance Immature legal system Immature social service system (continued)

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2. Weaknesses

3. Opportunities

4. Threats

Table I. Potential SWOT list identied

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SWOT

ID T4 T5 T6 T7 T8 T9 T10 T11 T12 T13 T14 T15 T16 T17 T18 T19 T20 T21

Descriptions Immature management system for PPP projects Inappropriate risk management of PPP projects Lack of PPP professionals Obstacles to equity guarantee Intricate project approval and permit Regional and sectional monopolization Discrimination against non-public ownership Lack of withdraw mechanism Excessive restrictions on participation Long time in contract transaction Abnormal ination Abnormal interest rate Legislative changes Public opposition Unclear denition of responsibilities Absence of competitive and transparent bidding process Lack of government stability Abnormal exchange rate

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Table I.

The survey was carried out from October to November 2007 targeting experts in China who are interested in the private participation in the public utilities. In total, 154 softcopy questionnaires were sent out by e-mails to the experts who participated in 2005 PPP international workshop in Beijing organized by Tsinghua University, or 2007 PPP international conference in Dalian organized by Dalian University of Technology. A total of 58 respondents returned complete questionnaires. As presented in Table II, 34 respondents are from the industry and 24 from academic organizations. The survey results are meaningful as 24 respondents, about 41.4 percent, have rich experiences in PPP projects. The project information and the roles of respondents are shown in Figures 2 and 3. All the respondents have shown great interests in this research, have lled in the questionnaire carefully and provided a lot of valuable comments (Figure 4). Three statistical tools, mean ranking, one way analysis of variance and factor analysis, were used to analyze the data from the survey. The analysis was conducted using the SPSS for Windows software package. Mean ranking was used to determine the signicance of each item rated by the experts, which is commonly adopted in similar studies, i.e. Wang et al. (2004). One way analysis of variance was used to

Role Table II. Survey respondents information Industrial organization Academic organization Total

Working experience (year) ,4 4-8 9-16 .16 8 10 18 8 4 12 8 5 13 10 5 15

PPP experience (project number) None 1 2 .2 21 13 34 4 4 8 1 3 4 8 4 12

Paper making 3% Athletic facilities 3% Prison 3% Real estate 6%

Refuse treatment 6%

Others 6% Transportation 33%

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Power & energy 14% Water 26% Government Governement 2% agent 2% Project company 23%

Figure 2. Survey respondents PPP projects (by type)

Others 2% Advisor 29%

Supplier 2% Operator 7% Contractor 9%

Financier 7% General contractor 5% Designer 12%

Figure 3. Survey respondents roles in PPP projects

examine whether respondents from different groups have signicant different perspectives. This approach has been found to be acceptable in other construction management researches, such as Li et al. (2005a). Factor analysis is a statistical technique to identify a relatively small number of factors that can be used to represent relationships among sets of many interrelated variables (Norusis, 1993). The Cronbach a reliabilities for DPEs SWOT are 0.783, 0.751, 0.779, and 0.796, suggesting that the data collected for the study are reliable (Norusis, 1993). Since the number of attributes in the SWOT list is greater than 7, x 2 is adopted to measure the degree of consensus amongst the respondents (Siegel and Castellan, 1988). The null hypothesis can be rejected if x 2 is greater than the critical value of x 2 at a 0.05, which means that respondents have some degree of agreement. The x 2 results of concordance test for the SWOT lists are 70.405, 64.733, 168.695, and 178.235, respectively, which are much greater than the critical values of 25.00, 23.68, 25.00, and 31.41.

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7.5

Figure 4. Exchange rate of RMB per US$ from January 2005 to September 2008

6.5 2005.01 2005.07 2006.01 2006.07 2007.01 2007.07 2008.01 2008.07

4. Analysis to DPEs strengths The scores of the identied strengths are listed in Table III along with statistical indicators, the mean, the ranking and F-value, and sorted by ID numbers. It represents the perceptions of respondents from different sectors, as well as the perceptions of respondents with or without PPP experience. It could be seen that seven items scored mean values greater than 4 (important) and nine items displayed mean values between 3 (neutral) and 4. The seven most important strengths include high management efciency, exible organization, high market sensitiveness, strong adaptive capacity, independent decision making, clear property rights, and low manufacture/operation cost. However, it could also be found that experts with and without PPP experience have signicant different perspectives on strengths S4 (high quality of staffs/managers) and S11 (favorable management structure). Respondents with PPP experience agree with these two items more.
Industry vs academy With vs without PPP experience Total Industry Academy F-test With Without F-test Mean Rank Mean Rank Mean Rank F Sign. Mean Rank Mean Rank F Sign. 3.84 3.78 4.03 3.48 3.81 4.03 3.84 4.26 4.12 4.10 3.50 3.95 3.59 3.93 4.07 4.12 10 13 6 16 12 7 11 1 2 4 15 8 14 9 5 3 3.79 3.91 4.12 3.47 3.79 4.09 4.00 4.26 4.26 4.21 3.47 3.97 3.56 3.88 4.18 4.15 12 10 6 15 13 7 8 1 2 3 16 9 14 11 4 5 3.92 3.58 3.92 3.50 3.83 3.96 3.63 4.25 3.92 3.96 3.54 3.92 3.63 4.00 3.92 4.08 10 14 8 16 11 4 12 1 6 5 15 7 13 3 9 2 0.230 1.358 0.645 0.012 0.026 0.395 2.326 0.005 1.970 1.399 0.094 0.054 0.075 0.196 1.137 0.055 0.633 0.249 0.425 0.913 0.873 0.532 0.133 0.946 0.166 0.242 0.761 0.818 0.785 0.659 0.291 0.815 4.08 3.83 4.04 3.88 3.79 3.96 3.96 4.25 4.17 4.00 3.79 3.83 3.58 4.17 4.25 4.04 5 12 6 11 14 10 9 1 3 8 15 13 16 4 2 7 3.68 3.74 4.03 3.21 3.82 4.09 3.76 4.26 4.09 4.18 3.29 4.03 3.59 3.76 3.94 4.18 13 12 6 16 9 4 10 1 5 3 15 7 14 11 8 2 2.647 0.118 0.002 7.029 0.017 0.395 0.602 0.005 0.097 0.702 4.999 0.716 0.000 2.382 1.620 0.247 0.109 0.732 0.961 0.010 * 0.897 0.532 0.441 0.946 0.757 0.406 0.029 * 0.401 0.984 0.128 0.208 0.621

ID S1 S2 S3 S4 S5 S6 S7 S8 S9 S10 S11 S12 S13 S14 S15 S16

Table III. Signicance of the DPEs strengths

A correlation matrix of 16 strengths indicated that strengths S2 (capital/resource abundance) and S6 (low manufacture/operation cost) have few correlation with others, which are suggested to be eliminated for factor analysis (Norusis, 1993). After removing the aforesaid strengths, the correlation matrix was recalculated. The result (Bartletts test of sphericity 295.437; sig. 0.000) suggested that the other 14 strengths are satised in terms of factor analysis. The KMO value 0.657 conrmed this (Norusis, 1993). Table IV contains the details of factor analysis on the DPEs strengths. Factor 1 ability to explore a new market This factor accounts for 18.6 percent of the total variances and consists of ve strengths that focus primarily on the ability to explore a new market. The components of factor 1 are high market sensitiveness, independent decision making, innovative, exible organization, and high management efciency. Compared to state-owned enterprises, DPEs are more sensitive to new business opportunity, innovative, exible and also efcient to invest in the new market. Taking the domestic exploration and design market for example, the number of DPEs in 2005 was three times greater than the total in 2004 (EQS & IDD, 2006). The rapid increase demonstrates the favorable ability of DPEs to enter a new market. Factor 2 independence of business operation In this factor, there are three strengths regarding the independence of business operation including active, clear property rights and service network adapted to domestic market. Factor 2 is responsible for 16.8 percent of the total variances. For instance, due to this independence, private cultural enterprises have played an important role in the culture and education industry, as said in an investigation of MoC (2007).
Strengths High market sensitiveness Independent decision making Innovative Flexible organization High management efciency Active Clear property rights Service network adapted to domestic market High quality of staffs/managers High operation level Favorable management structure Effective resource management Rich market experience Strong adaptive capacity Capital/resource abundance Low manufacture/operation cost % of variance Cumulative % of variance Factor 1 0.841 0.704 0.662 0.601 0.542 0.737 0.654 0.580 0.781 0.760 0.637 0.564 0.865 0.685 18.642 18.642 16.780 35.422 15.289 50.711 13.100 63.811 Factor 2 Factor 3 Factor 4

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Table IV. Factor analysis on the DPEs strengths

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Factor 3 organization structure and management ability Four items, namely high quality of staff/managers, high operation level, favorable management structure, and effective resource management, comprise the elements of factor 3 concerning the organization structure and management ability. This factor accounts for 15.3 percent of the total variances. The rapid development and the high wage of DPEs can attract better educated employees. According to the investigation on the status of college graduate employment in 2007 conducted by Institute of Economics of Education (IEE), Peking University, the major choice of graduates in 2007 is DPEs, about 34.2 percent (IEE, 2007). Factor 4 market competition ability This factor is responsible for 13.1 percent of the total variances and has two items that emphasize the market competition ability of DPEs. DPEs that are willing to invest in infrastructure projects may have rich market experiences in their own industries. The strong adaptive capacity is the other high loading component. During the reform and development of Chinese economic community, DPEs may encounter several obstacles, such as nancing limitation, discrimination policy. These strengthen the ability of DPEs to seek investment opportunities, and adapt themselves quickly to the new market. 5. Analysis to DPEs weaknesses Table V shows the respondents perceptions of the signicance of the DPEs weaknesses. It could be seen that there are only two items scored mean values greater than 4, and 13 items displayed mean values between 3 and 4. The weaknesses, namely poor nancing ability, low risk resistance capacity, lack of PPP experience, lack of bargaining power with government, nonstandard operation behavior, are regarded as the most important. It could be also found that weaknesses W4 (restrained investment space), W6 (long negotiation time), W11 (loose organization structure), and W12 (low competitive power) received signicantly different perceptions for experts from different factors. Experts from the academic sector scored W6 greater, and less for the other three items.
Industry vs academy Total Industry Academy F-test Mean Rank Mean Rank Mean Rank F Sign. 3.53 3.53 4.09 3.59 3.76 3.29 3.24 3.90 4.05 3.67 3.40 3.52 3.72 3.31 3.34 9 8 1 7 4 14 15 3 2 6 11 10 5 13 12 3.53 3.59 4.24 3.88 3.91 3.00 3.03 3.74 4.15 3.79 3.68 3.74 3.88 3.38 3.47 11 10 1 4 3 15 14 7 2 6 9 8 5 13 12 3.54 3.46 3.88 3.17 3.54 3.71 3.54 4.13 3.92 3.50 3.00 3.21 3.50 3.21 3.17 5 10 3 13 7 4 6 1 2 8 15 12 9 11 14 0.002 0.265 2.393 8.259 1.721 8.418 3.285 2.533 0.720 1.375 6.277 5.139 1.706 0.341 1.141 0.964 0.609 0.128 0.006 * 0.195 0.005 * 0.075 0.117 0.400 0.246 0.015 * 0.027 * 0.197 0.562 0.290 With vs without PPP experience With Without F-test Mean Rank Mean Rank F Sign. 3.46 3.50 4.29 3.42 3.75 3.29 3.25 4.04 4.08 3.75 3.38 3.29 3.50 3.29 3.42 8 6 1 10 4 12 15 3 2 5 11 14 7 13 9 3.59 3.56 3.94 3.71 3.76 3.29 3.24 3.79 4.03 3.62 3.41 3.68 3.88 3.32 3.29 9 10 2 6 5 13 15 4 1 8 11 7 3 12 14 0.228 0.054 2.259 1.201 0.003 0.000 0.003 0.995 0.039 0.273 0.017 2.628 1.706 0.011 0.182 0.635 0.817 0.138 0.278 0.959 0.993 0.960 0.323 0.844 0.603 0.898 0.111 0.197 0.915 0.671

ID W1 W2 W3 W4 W5 W6 W7 W8 W9 W10 W11 W12 W13 W14 W15

Table V. Signicance of the DPEs weaknesses

A correlation matrix of 15 weaknesses was calculated. The result indicated that weakness W1 (limited understanding of infrastructures) has few correlation with others and is removed to improve the quality of factor analysis. After eliminating it, the correlation matrix was recalculated. The result (Bartletts test of sphericity 271.785; sig. 0.000) suggested that the other 14 weaknesses are satised in terms of factor analysis. The KMO value 0.617 conrmed this (Norusis, 1993). The details of factor analysis on the DPEs weaknesses are presented in Table VI. Factor 1 internal structure and management This factor accounts for 19.0 percent of the total variances and insists of four items which focus primarily on the internal structure and management of DPEs. The nancial situation of DPEs is deemed as a notable weakness, as most DPEs have a high debt-equity ratio. Besides, nonstandard operation behavior and loose organization structure also lead to a low competitive power (Li, 2007). Factor 2 poor negotiation ability Factor 2 is responsible for 14.5 percent of the total variances, and includes two items regarding the poor negotiation ability of DPEs. Owing to the governments erroneous and unfair view of private enterprises, especially DPEs, i.e. discrimination against non-public ownership (Li, 2007), it would cost DPEs long time and high transaction expenditure to achieve an agreement with government. Factor 3 nancing and investment problems Poor nancing ability, lack of bargaining power with government and restrained investment space comprise the elements of factor 3 concerning the DPEs nancing and investment problems. This factor accounts for 14.0 percent of the total variances. Although the Chinese Government has promulgated a series of relative regulations, which aims to encourage commercial banks to increase the debt service to DPEs, the difculty of nancing for DPEs still exists due to their high debt-equity ratio and low
Weaknesses High debt-equity ratio Low competitive power Nonstandard operation behavior Loose organization structure Long negotiation time High negotiation cost Poor nancing ability Lack of bargaining power with government Restrained investment space Lack of PPP experience Poor coordination ability Low risk resistance capacity Small scale Lack of long sight development strategy Limited understanding of infrastructures % of variance Cumulative % of variance Factor 1 0.798 0.751 0.714 0.660 0.931 0.914 0.796 0.755 0.675 0.809 0.614 0.612 0.855 20.563 18.970 18.970 14.474 33.444 13.980 47.424 12.376 59.800 10.911 70.711 Factor 2 Factor 3 Factor 4 Factor 5

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Table VI. Factor analysis on the DPEs weaknesses

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credit rating (Li, 2007). The key reasons for limited investment space may include excessive restrictions on participation in public utilities, regional and sectional monopolization, etc. Factor 4 lack of management capability in infrastructure projects There are three items pertaining to the management capability in infrastructure projects, including lack of PPP experience, poor coordination ability and low risk resistance capacity. This factor is responsible for 12.4 percent of the total variances. Privatized infrastructure projects have inherent disadvantages, such as high risk, lack of appropriate skills and experience, complicated and expensive tender procedure, etc. (Chan et al., 2006), which required from the private consortium a strong management ability. Unfortunately, DPEs normally have few PPP experience (Zhang, 2005b) and poor coordination ability (Wu et al., 2007). Factor 5 unsustainable development This factor explains the possibility of unsustainable development that some DPEs would encounter, as they are small and lack long-term development strategy (Li, 2007). Factor 5 accounts for 10.9 percent of the total variances. Unsustainable development may result in a poor risk resistance capacity, but on the other side, it is also the driving force for the DPEs to participate in infrastructure development so as to obtain long-term stable cash inows. 6. Analysis to DPEs opportunities Signicance of the DPEs opportunities to develop infrastructure projects is listed in Table VII. There are three items scored mean values greater than 4 and 13 items displayed mean values between 3 and 4. Among them, opportunities O5 (enormous demand of public infrastructures) and O1 (active changes of nancing policy) obtained a much higher score, 4.34 and 4.29, respectively. The result also indicated that experts from different groups share the same opinions on the potential of PPP market in China.
Industry vs academy Total Industry Academy F-test Mean Rank Mean Rank Mean Rank F Sign. 4.29 3.74 3.38 3.03 4.34 3.72 4.10 3.43 3.91 3.69 3.48 3.71 3.41 3.21 3.95 3.74 2 7 14 16 1 8 3 12 5 10 11 9 13 15 4 6 4.32 3.88 3.44 3.09 4.21 3.56 4.00 3.53 4.00 3.65 3.44 3.76 3.41 3.24 3.94 3.65 1 6 12 16 2 10 3 11 4 8 13 7 14 15 5 9 4.25 3.54 3.29 2.96 4.54 3.96 4.25 3.29 3.79 3.75 3.54 3.63 3.42 3.17 3.96 3.88 2 11 13 16 1 5 3 14 7 8 10 9 12 15 4 6 0.133 1.848 0.406 0.279 2.650 2.357 1.059 0.775 0.856 0.218 0.219 0.407 0.000 0.085 0.006 1.014 0.716 0.179 0.526 0.600 0.109 0.130 0.308 0.382 0.359 0.642 0.642 0.526 0.985 0.771 0.940 0.318 With vs without PPP experience With Without F-test Mean Rank Mean Rank F Sign. 4.29 3.88 3.46 3.00 4.50 3.71 4.25 3.46 4.00 3.67 3.46 3.67 3.58 3.17 4.17 3.71 2 6 12 16 1 8 3 13 5 10 14 9 11 15 4 7 4.29 3.65 3.32 3.06 4.24 3.74 4.00 3.41 3.85 3.71 3.50 3.74 3.29 3.24 3.79 3.76 1 10 13 16 2 7 3 12 4 9 11 8 14 15 5 6 0.000 0.812 0.330 0.057 1.618 0.010 1.059 0.029 0.423 0.032 0.038 0.098 1.246 0.085 2.812 0.061 0.990 0.371 0.568 0.812 0.209 0.920 0.308 0.865 0.518 0.860 0.847 0.756 0.269 0.771 0.099 0.806

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ID O1 O2 O3 O4 O5 O6 O7 O8 O9 O10 O11 O12 O13 O14 O15 O16

Table VII. Signicance of the DPEs opportunities

A correlation matrix of 16 opportunities was calculated. The result (Bartletts test of sphericity 300.191; sig. 0.000) suggested that all opportunities are satised in terms of factor analysis. The KMO value 0.602 is satisfactory as well (Norusis, 1993). The analysis produced a six-factor solution explaining 71.1 percent of the total variances, as shown in Table VIII. Factor 1 macro industry environment This factor is composed of four items that mainly focus on the macro industry environment in China. It explains 13.4 percent of the total variances. Government supervision function is demandingly increasing and the implementation of PPP scheme will then be able to release the government from the construction and operation (Li et al., 2005b). The stable and sustainable industry development in China also presents a good opportunity for DPEs to participate in the infrastructure development. Successful international and domestic PPP experiences and increasing demand of innovative technologies are the other high loading components. Factor 2 macro economic development Factor 2 accounts for 13.1 percent of the total variances and consists of two items, including further improvement in living standards and sustainable development of national economy. In Beijing alone, the average gross domestic product growth rate registers 11.9 percent, and the per capita disposable income of urban dwellers has increased annually by 10.4 percent (BMCDR, 2006). With this improvement of material
Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6

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Opportunities

Increasing demand of government supervision 0.818 Successful international PPP implementations 0.736 Increasing demand of innovative technologies 0.580 Stable industry development 0.577 Further improvement in living standards Sustainable development of national economy Positive policy changes for non-public capital Respectability of private enterprises Favorable changes of nancing policy Governments incentives for PPP Enormous demand of public infrastructures Promulgation of relative PPP laws/regulations Low efciency of government investment Budgetary pressure to the government Low efciency of government operation Increasing understanding of PPP in the industry % of variance 13.383 Cumulative % of variance 13.383

0.856 0.807 0.854 0.813 0.784 0.642 0.633 0.540 0.716 0.658 0.620 13.067 26.450 12.397 38.848 12.207 51.055 12.160 63.214 0.733 7.862 71.077 Table VIII. Factor analysis on the DPEs opportunities

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life and the transformation of development concepts, urban and rural residents are demanding more diversied and differentiated consumption. Similarly, the economic growth also exerts a lot of pressure on the infrastructure development. Factor 3 favorable environment for private enterprises There are two items in this factor group regarding the favorable environment for private enterprises, namely positive policy changes for non-public capital and respectability of private enterprises. Factor 3 is responsible for 12.4 percent of the total variances. The Chinese Government has promulgated some regulations to permit and encourage private enterprises to invest in public utilities, such as Decision of the Central Committee of the Communist Party of China on some issues concerning the improvement of the socialist market economy adopted on October 14, 2003, Several opinions of the state council on encouraging, supporting and guiding the development of individual and private economy and other non-public sectors of the economy issued on February 19, 2005. These legal improvements provide the permission and possibility for DPEs to participate in the public utilities development. Factor 4 governments support and incentives This factor, which explains 12.2 percent of the total variances, has four items that emphasize the governments support and incentives for private participation in public projects. These four items are favorable changes of nancing policy, governments incentives for PPP, enormous demand of public infrastructures, and promulgation of relative PPP laws/regulations. According to the ndings of several previous researches, risks related to the government are considered as the most critical risks to PPP projects, such as political and legal risks (Wang et al., 1999, 2000). In particular, the macro-economics control and intervention on investment and market from the central government may also impose risks to PPP projects (Sachs et al., 2007). Support and incentives from Chinese Governments are, therefore, signicant to the implementation of PPP projects. Factor 5 governments shortages Three items comprise the elements of factor 5 concerning the governments shortages, including low efciency of government investment, budgetary pressure to the government and low efciency of government operation. This factor accounts for 12.2 percent of the total variances. For example, the forecast of the total investment on environmental construction and protection in the 11th ve-year is 1,375 billion Renminbi (RMB), including 660 billion RMB on urban environmental infrastructures, which may impose budgetary pressure to the government (Zhou, 2005). The shortages of government in the construction and operation of public utilities become a driving force of the adoption of PPP (Li et al., 2005b). Factor 6 increasing understanding of PPP This factor explains that PPP concept is increasingly understood and accepted by both the government and the private enterprises. As mentioned above, a new round of PPP investment tide is emerging in China again. About two-third of the 32 sport venues including the main stadium for the 2008 Beijing Olympic Games and the Lines 3-5 subway routes in Beijing were developed with PPP vehicle (Beijing Evening News, 2003).

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In line with the wide application, several PPP relative workshops, conferences and training programs are organized and held in China, like 2005 PPP international workshop in Beijing organized by Tsinghua University, 2005 International Forum on Infrastructure Marketization in Beijing organized by BMCDR, 2007 PPP international conference in Dalian organized by Dalian University of Technology, etc. Unlike in last decade, the concept of PPP is now regarded to be well known in China (Sachs et al., 2007). However, it is still far behind other developed countries, and it is urgent to investigate and publicize the measures to achieve value for money in PPP projects.

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7. Analysis to DPEs threats The signicance of the DPEs threats is presented in Table IX. It could be seen that there are ve items that displayed mean values greater than 4, and 16 items scored mean values between 3 and 4. The most important threats of DPEs are availability of nance, immature legal system, lack of PPP professionals, immature management system for PPP projects and inappropriate risk management of PPP projects. It could also be found that respondents from academic organizations consider T13 (long time in contract transaction) more critical than industry practitioners; experts with and without PPP experience have signicantly different opinions on threats T2 (immature legal system) and T16 (legislative changes). Those who participated in PPP projects believe these two items are important to the successful PPP implementation. A correlation matrix of 21 threats calculated shows that all the items have high correlation with each other. The result (Bartletts test of sphericity 480.130; sig. 0.000; KMO 0.560) suggested that it is satised to proceed a factor analysis. A seven-factor solution is obtained as presented in Table X.
Industry vs academy Total Industry Academy F-test Mean Rank Mean Rank Mean Rank F Sign. 4.17 4.17 3.62 4.12 4.00 4.14 3.72 3.78 3.93 3.22 3.67 3.53 3.36 3.36 3.22 3.74 3.22 3.78 3.62 3.05 3.36 1 2 12 4 5 3 10 8 6 20 11 14 15 16 19 9 18 7 13 21 17 4.12 4.03 3.59 4.09 3.97 4.29 3.71 3.79 3.88 3.18 3.62 3.56 3.12 3.35 3.26 3.56 3.12 3.79 3.53 3.00 3.50 2 4 11 3 5 1 9 7 6 18 10 12 19 16 17 13 20 8 14 21 15 4.25 4.38 3.67 4.17 4.04 3.92 3.75 3.75 4.00 3.29 3.75 3.50 3.71 3.38 3.17 4.00 3.38 3.75 3.75 3.13 3.17 2 1 14 3 4 7 8 9 5 18 10 15 13 16 19 6 17 11 12 21 20 0.383 3.291 0.154 0.173 0.105 2.296 0.043 0.031 0.251 0.154 0.273 0.061 4.399 0.010 0.223 3.044 0.853 0.033 0.816 0.097 1.997 0.538 0.075 0.697 0.679 0.747 0.135 0.836 0.862 0.619 0.696 0.603 0.805 0.040 * 0.922 0.639 0.087 0.360 0.856 0.370 0.756 0.163 With vs without PPP experience With Without F-test Mean Rank Mean Rank F Sign. 4.38 4.54 3.75 4.33 4.00 4.00 3.83 3.83 3.96 2.92 3.79 3.46 3.46 3.38 3.25 4.17 3.04 3.83 3.38 3.21 3.25 2 1 12 3 5 6 8 9 7 21 11 13 14 15 17 4 20 10 16 19 18 4.03 3.91 3.53 3.97 4.00 4.24 3.65 3.74 3.91 3.44 3.59 3.59 3.29 3.35 3.21 3.44 3.35 3.74 3.79 2.94 3.44 2 5 13 4 3 1 10 8 6 15 11 12 19 17 20 14 18 9 7 21 16 2.720 12.659 1.238 3.941 0.000 0.870 0.779 0.152 0.039 3.375 0.650 0.301 0.317 0.010 0.045 9.071 1.257 0.165 3.063 0.447 0.642 0.105 0.001 * 0.271 0.052 1.000 0.355 0.381 0.698 0.844 0.071 0.424 0.586 0.576 0.922 0.833 0.004 * 0.267 0.686 0.086 0.507 0.427

ID T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12 T13 T14 T15 T16 T17 T18 T19 T20 T21

Table IX. Signicance of the DPEs threats

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Threats Regional and sectional monopolization Intricate project approval and permit Discrimination against non-public ownership Absence of competitive and transparent bidding process Immature social service system Inappropriate risk management of PPP projects Lack of PPP professionals Immature management system for PPP projects Abnormal interest rate Abnormal ination Abnormal exchange rate Public opposition Unclear denition of responsibilities Lack of government stability Obstacles to equity guarantee Availability of nance Excessive restrictions on participation Lack of withdraw mechanism Immature legal system Legislative changes Long time in contract transaction % of variance Cumulative % of variance

Factor Factor Factor Factor Factor Factor Factor 1 2 3 4 5 6 7 0.806 0.704 0.584 0.565 0.535 0.798 0.785 0.701 0.869 0.826 0.630 0.870 0.675 0.568 0.747 0.617 0.550 0.466 0.833 0.650 0.823 13.846 11.820 11.512 8.940 8.878 8.695 6.363 13.846 25.666 37.178 46.118 54.996 63.691 70.055

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Table X. Factor analysis on the DPEs threats

Factor 1 government management issues This factor accounts for 13.8 percent of the total variances and consists of ve threats that focus primarily on the government management issues, including regional and sectional monopolization, intricate project approval and permit, discrimination against non-public ownership, absence of competitive and transparent bidding process and immature social service system. Similar conclusions have been seen in several studies before, such as Sachs et al. (2007) and Li (2007). The collected data from Sachs et al.s (2007) survey conrms the importance of government to the performance of PPP projects and perceives legal and regulatory risks to be the greatest obstacle for successful PPP implementation. Factor 2 provisional deciencies of PPP application This factor has three items explaining the deciencies of PPP application so far, and is responsible for 11.8 percent of the total variances. Inappropriate risk management is considered as a major reason for the failure of many existing PPP projects (Zhang, 2005a). Lack of PPP professionals and immature management system for PPP projects in China are also other negative factors inuencing the attractiveness of PPP for DPEs (Li, 2007). This factor also implies that there is still needed education of the PPP participants, including the public, private, bankers, users, and the society.

Factor 3 economic uctuation There are three threats related to the economic uctuation in this factor that explains 11.5 percent of the total variances. Although China has a persistent economic growth these years, inuential economic event is still deemed as a potential risk in a PPP project (Li, 2005c). For instance, RMB Yuan has been appreciating rapidly since late 2006 (PBC, 2008), which enterprisers would be suggested to pay attention to, if currency exchanges exist in their business. However, the World Bank (2008) is condent to Chinas economic growth and states that China is likely to grow robustly and is well-positioned to stimulate demand if needed. Factor 4 macro social environment Three items, public opposition, unclear denition of responsibilities and lack of government stability, comprise the elements of factor 4 regarding the macro social environment. In traditional public project procurement, the public client assumes most of the risks and responsibilities. The concept of transferring risks away from public clients is frequently misunderstood by government, private investors and also society (Liu and Wang, 2006), and therefore bring along the social pressure to the adoption of PPP, such as project-specic objections or general resistance to the entire PPP program. Factor 5 restrictions on infrastructure projects In this factor, there are four items concerning restrictions on infrastructure projects, namely obstacles to equity guarantee, availability of nance, excessive restrictions on participation and lack of withdraw mechanism. The risk factors associated with PPP projects in China in terms of nancing and institutional frameworks distinguish themselves from those in developed countries. For example, the arrangement of oating charge on project assets as a guarantee needed for innovative project nancing is not well established legally (Li, 2005); the corporate bond market is not sufciently mature compared with sovereign bonds (Yuan, 2004). Equity of private sectors participated in infrastructure projects is therefore not guaranteed. Restrictions on participation as well as lack of withdraw mechanism are also encountered in infrastructure projects. Factor 6 immature legal system This factor includes two items pertaining to the immature legal system in China. Although Chinese Government has promulgated some regulations relative to PPP implementation, the existing legal and regulatory regime of China is still considered as inadequate to allow successful implementation of PPP model. For instance, there is a lack of legal regulatory clarity and consistency in the existing regime; there are also uncertainties on the permissible form of government guarantees and assistance that may be provided to a PPP project company (ADB, 2008). Factor 7 long contract transaction time This factor focuses on the long contract transaction time in PPP projects. Much management time in contract transaction and lengthy delays in negotiation are ranked as the most negative factors associated with PPP procurement in a questionnaire survey conducted by Li et al. (2005b). The situation in China is assumed to be critical, as even in the UK, 98 percent of the selected projects had overrun their pre-contract

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time estimates ranging from 11 to 166 percent (Ahadzi and Bowles, 2004). This threat would lead to a delay of the timing of cash inows, which may present a lot of nancial pressure to the project company. 8. Conclusions In line with the tremendous economic growth in China, the immense demand for basic infrastructures has presented a good business opportunity for private investors. However, characteristics associated with PPP nancing mode, which typically involves huge investment, long concession period, high risks and complicated contractual structure, present the necessity for DPEs to examine their SWOT when they enter the infrastructure industry. This paper identied comprehensive variables of these four elements through a synthesis of literature review, interviews and brainstorming discussion. A questionnaire survey was conducted to examine the relative signicance of each item and the difference among the perceptions of experts from different factors. The critical SWOT was extracted by factor analysis on the aforesaid variables. Their typical strengths include ability to explore a new market, independence of business operation, organization structure and management ability and market competition ability. Major weaknesses are internal structure and management, poor negotiation ability, nancing and investment problems, lack of management capability in infrastructure projects and unsustainable development. On the other hand, the primary opportunities comprise macro industry environment, macro economic development, favorable environment for private enterprises, governments support and incentives, governments shortages and increasing understanding of PPP. Major threats are as follows: government management issues, provisional deciencies of PPP application, economic uctuation, macro social environment, restrictions on infrastructure projects, immature legal system and long contract transaction time. The research ndings in this study provide useful references to help DPEs in assessing their SWOT. It is important to understand that the elements and their relative signicance are persistently changing, as the diversity exists in the DPEs as well as the infrastructure projects. The methodology in this research nevertheless provides a useful tool for assessing these changes.
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