Infrastructure

The potential for commercially viable private investment in infrastructure is evident in China, which has largely relied on public spending to finance projects in the past. New pressures are emerging to improve public services and implement projects to improve the quality of life. Rapid economic changes and urban population growth are making it increasingly difficult to meet the demands without attracting new funding sources and developing new types or public-private partnerships.

Private participation in infrastructure can help the people of China by extending access to basic infrastructure and improving the quality and reliability of basic services. As local governments work with private investors to identify commercially viable investment projects, greater emphasis will be placed on developing projects in a manner that will mitigate critical risks so as to attract and retain private capital. IFC can be a partner in that process.

Despite strategic investors' favorable view of country risk in China, other issues need to be addressed to attract significant investments in the infrastructure sector.

• Pricing regimes often do not cover investment and maintenance costs
• New or untested utility regulatory regimes
• Widely differing approach to infrastructure across the country
• Limited foreign investor appetite in current uncertain market environment

In a select number of areas, the private sector is playing a role in delivering services. IFC is supporting that process. In 2004, IFC provided loans and equity to Xinao Gas to help it develop its private distribution network in Eastern China. We have also agreed to provide a loan that will support China Green's solid waste to power facility. This is an innovative and environmentally sound approach that will help increase China's power needs while offering a solid waste solution.

Encouraging private sector infrastructure investment also provides unique opportunities to deepen capital markets. As private companies or municipal entities seek to raise capital to support their projects, they may be able to develop bond transactions. IFC has found ways to support this process in other countries.

Most of all, IFC's participation in projects supports good practices. At IFC we understand that clients have a continued need for our capital, but also for IFC to pioneer creative solutions that will contribute to the sustainability of private sector activity in emerging markets. It makes good sense for infrastructure companies to improve their approach to the environment or their impact on the community while managing large and complex projects that directly affect people lives.

IFC's ability to provide value to our clients beyond financing differentiates us from other financial institutions. Increasingly infrastructure companies are recognizing this value. It comes from the expertise IFC has amassed over nearly half a century, from our global reach, and from our unique capabilities-particularly our expertise on environmental and social matters, as well as in corporate governance.

For more information on infrastructure, please contact:

China, Beijing Liu Dong, Principal Investment Officer International Finance Corporation Beijing 100004, PR China Phone: (86-10) 6505-8686 Fax (86-10) 6505-9808

Hong Kong SAR Saud Siddique, Principal Investment Officer International Finance Corporation Hong Kong SAR, PR China Phone: (852) 2509 8131 Email: ssiddique@ifc.org