As local governments explore the transformation and development of urban investment companies and comprehensive district development, the "ABO" model has gradually become a buzzword, sparking a wide range of discussions with varying perspectives.

Nationwide, an increasing number of comprehensive district development and concession projects are adopting the "ABO" model.

Local governments are also placing greater emphasis on the application of the "ABO" model in addressing local investment challenges, making it a new favorite in the realm of government investment and financing.

But is this model truly an innovative reform, or merely “old wine in a new bottle”?

ART 01: Where Did It Come From?

"ABO" stands for " Authorize-Build-Operate."

In the practice of local urban development, a representative approach involves local governments directly authorizing state-owned investment companies under their jurisdiction to undertake the construction and operation of a specific industry, district, or major project, while providing necessary resources and financial support.

This package of authorization and support policies is typically formalized in an “Authorized Operation Agreement” signed between the local government and the urban investment enterprise.

The “authorized operation” approach has sparked heated debate primarily because, against the backdrop of local government debt , it is an exploratory innovation that raises issues difficult to clearly define within the existing policy framework.

For example, why can urban investment companies obtain project investment rights directly without going through a competitive bidding process? Does the financial support provided by local governments for projects under the “authorized operation” model constitute hidden government debt? What is the relationship between “authorized operation” and government procurement of services?

To address these questions, let’s first examine how the “ABO” model came about.

The “ABO” model originated from an innovation in the investment and financing system of Beijing’s rail transit sector in 2016.

In 2016, the Beijing Municipal Commission of Transport, on behalf of the Beijing Municipal Government, formally signed the “Beijing Rail Transit Authorized Operation Agreement” with Beijing Investment Corporation. This agreement, tailored to the actual conditions of Beijing’s rail transit system, creatively introduced the ABO (Authorize-Build-Operate) model.

Specifically, the Beijing Municipal Government authorized BTI to fulfill the role of project owner for the city’s rail transit sector. Under this authorization, BTI is responsible for integrating resources from various market entities to provide comprehensive services—including investment, financing, construction, and operation—for urban rail transit projects.

Furthermore, the Authorized Operation Agreement stipulates a comprehensive financial support policy from the Beijing municipal government to BIC in the form of authorized operation fees.

The “ABO” model thus emerged.

ART 02 Roles of the Parties

Under the "ABO" model, local governments authorize local state-owned enterprises to act as project owners for public service sectors or infrastructure projects. These local state-owned enterprises are responsible for integrating market resources and providing comprehensive services—including project investment, financing, construction, and operation—while the government provides policy and financial support to the local state-owned enterprises as agreed.

A brief analysis of the roles and responsibilities of the parties involved in the ABO model is as follows:

1. Local Government

As the authorizing entity, the local government delegates local public service projects to local SOEs. The local government’s authorization is a prerequisite for the smooth operation of the entire ABO model.

Under the ABO model, local governments must design reasonable performance evaluation mechanisms to implement pay-for-performance arrangements, thereby reducing compliance risks associated with fixed returns and hidden debt. At the same time, this implies that the government reduces its involvement in micro-level affairs, transitioning from a project builder to a supervisor, and advancing the transformation of government functions.

2. Local State-Owned Enterprises

As the authorized entities, local state-owned enterprises will fully leverage their advantages in resource integration to provide comprehensive services including project investment, financing, construction, and operation.

Local state-owned enterprises operating under ABO authorization should possess strong investment and financing capabilities, extensive experience in specific industries, or substantial advantages in other areas conducive to project advancement. They must also demonstrate robust financial strength and the ability to integrate market resources to ensure the successful implementation of project investments and reduce operational costs.

3. Private Capital

Under the ABO model, private capital may also participate in projects through competitive processes. By jointly establishing project companies with local state-owned enterprises, private capital will be responsible for project investment, financing, construction, and operations.

ART 03 Interaction Among Parties

1. Local Government and Local State-Owned Enterprises

As mentioned above, local governments authorize local state-owned enterprises to act as project owners. The authorization relationship between local governments and local state-owned enterprises can be formalized through agreements or other legal documents.

In practice, whether local governments can directly authorize local state-owned enterprises to serve as project construction entities has long been a focal point of industry discussion. From a policy perspective, direct authorization under the ABO model does not conflict with current policy requirements and is supported by relevant documentation; from an efficiency perspective, local state-owned enterprises, drawing on years of experience in specific industries and their understanding of local conditions, are often better positioned to effectively drive project implementation; and from a case study perspective, the majority of ABO projects adopt the direct authorization approach.

Of course, to avoid crossing the policy red lines regarding local debt control, local governments and local SOEs must prepare certain necessary transaction structures and risk mitigation measures.

2. Local SOEs and Social Capital

As the project owner, the local SOE can decide whether to implement the project independently or through resource integration. At this stage, the private sector partner can participate in the project through competitive processes and establish a project company with the local SOE, thereby facilitating the allocation of the private sector’s resources.

As local state-owned enterprises, they possess greater flexibility in procurement and can adopt more flexible cooperation models with private capital partners.

3. Local Governments and the Project Company

After the project company is established, it assumes responsibility for specific matters such as project investment, financing, construction, and operations, while the local government assumes the role of regulator and evaluator. The government evaluates the project and pays based on performance (adhering to the principle of “revenue-based expenditure,” whereby the government bears only the limited liability specified in the contract and does not incur new government debt). The project company generates profits through authorized operating fees and project operational income.

ART 04: Differences from PPP

Conceptually, “ABO” appears quite similar to “PPP.”

In reality, there are significant differences between the two. Before summarizing the basic characteristics of ABO, the following are the main operational distinctions between the two, based on an analysis and clarification of their differences:

(1) Different Scope of Application

At present, the focus of the PPP model has shifted toward projects with certain revenue streams and favorable market conditions. In particular, Document No. 10 [2019] of the Ministry of Finance further emphasized the revenue-generating nature of PPP, resulting in a further narrowing of the scope of PPP coverage.

The ABO model, through cooperation with local state-owned enterprises, should focus on large-scale public service projects characterized by underdeveloped markets, government monopolies, limited appeal to private capital, and distinct regional characteristics. Such projects generally account for a significant portion of regional development and infrastructure; they either lack sufficient revenue sources and are highly dependent on local government finances, or fall within the scope of government monopolies with insufficient marketization. Adopting the ABO model can, to a certain extent, fill the gaps in PPP application.

(2) Differences in Implementation Models

Due to strict process oversight, projects require clearly defined boundaries. This dictates that PPP project packages will not be overly complex, typically taking the form of a single project or a simple bundle of several related sub-projects.

One of the key advantages of the ABO model is its ability to coordinate similar projects within a region. The authorized enterprise should serve as the unified owner for specific sectors within the jurisdiction, thereby facilitating the overall planning and phased implementation of similar regional projects, scientifically managing the relationship between project timelines and regional development needs, and balancing capital allocation.

(3) Different Requirements for Cooperation Partners

Social capital must be market-oriented enterprises outside the financing platforms affiliated with the local government. This fundamentally encourages public-private cooperation and requires social capital to provide professional services such as investment and financing, construction, and operations management.

The ABO model should focus on public-public cooperation, with authorized partners primarily consisting of large local state-owned enterprises that possess outstanding industry experience and resource advantages. In addition to providing professional services such as project investment, financing, construction, and operations management through resource integration, these entities must also fulfill functions related to state-owned asset management, capital operations, and the development of relevant resources. Under the ABO model, authorized enterprises may engage in PPP arrangements or subcontract operations, or they may independently undertake investment, construction, and operations, enjoying a higher degree of autonomy.

(4) Differences in the Method of Selecting Partners

Under the traditional model, the selection of social capital must go through government procurement. In contrast, the ABO model allows for direct authorization when determining the project owner. In my view, one could even argue that direct authorization is a defining characteristic of the ABO model.

From a rationality perspective, local governments’ authorization of local state-owned enterprises (SOEs) is a well-established practice and a manifestation of internal autonomy. Many local SOEs have accumulated rich industry experience and regional resources through long-term authorized operations; blindly requiring open competition is not only unrealistic but may also be counterproductive. From a compliance perspective, local governments’ direct authorization of local SOEs aligns with the reform direction of the state-owned capital authorization and operation system, which prioritizes capital management.

ART 05 Operational Recommendations

(1) Emphasize the Evaluation and Review of Authorized Entities

There is currently significant debate regarding whether the ABO model should adopt a competitive approach or direct authorization. The author believes that the ABO model does not require the establishment of a dedicated competitive procurement process. However, it is necessary to thoroughly assess the comprehensive service capabilities of the local SOEs to be authorized prior to granting authorization.

As mentioned above, the ABO model primarily involves coordinated regional implementation with a broad scope of impact. It places extremely high demands on the authorized entity’s experience and accumulated resources within the relevant industry and region—qualities that external private capital typically lacks.

Before determining the licensee, it is essential to fully consider the government’s specific professional service requirements, examine the licensee’s implementation and management experience in relevant industries as well as its resource integration capabilities, and assess the degree of alignment between the two. This will also provide direction for the market-oriented transformation of local state-owned enterprises and platform companies.

(2) Compliance with Existing Procedural Management Regulations

The model must strictly follow the stages of project identification, preparation, procurement, execution, and handover; conduct fiscal affordability assessments and value-for-money evaluations in accordance with established standards; and ensure that government expenditure obligations do not exceed 10% of general public budget expenditures.

Although the ABO model currently lacks specific regulations and is theoretically free from these restrictions, in practice it must still comply with relevant normative requirements regarding project approval, debt control, and budget management.

(3) Coordinating the Use of Regional Funds

The ABO model primarily targets two types of projects: first, those involving government monopolies; and second, those with insufficient profitability that hold little appeal to private capital. The former can generally achieve break-even through the project itself, while the latter, due to insufficient self-generated revenue, often requires careful balancing of fund usage within the region.

Fortunately, under the ABO model, the scope of authorized operations is broad, project structures are complex, and there is considerable flexibility for balancing regional funds and coordinating project implementation. This requires the authorized entity to maintain a comprehensive financial overview, with regional revenue-expenditure balance as the fundamental objective. It must actively develop operational resources within the region, effectively balance high- and low-yield projects, reasonably schedule project timelines, and formulate a comprehensive regional implementation plan.

Investment Promotion Network (Investor-side),,, During the initial engagement with a company, I used the Investment Promotion Network mini-program.