Pacific Construction Sues Guigang Over $111M PPP Dispute

A Chinese court has rejected a 600 million yuan ($83 million) lawsuit filed by a subsidiary of Pacific Construction Group against the Guigang Urban Management Bureau, in a case that exposes the deepening fault lines between private enterprises and local governments over China’s troubled Public-Private Partnership (PPP) model. The first-instance verdict, handed down on May 15 by the Gangbei District People’s Court in Guangxi, dismissed all claims by Guigang Nanyang Construction Co. to terminate its contract and recover losses from the ill-fated Nanshan District Water Environment Improvement Project.

A Project Built on Shaky Ground

The dispute centers on an 800 million yuan ($111 million) PPP project launched in 2019 to transform the Nanshan District in Guigang. Pacific Construction Group — a Fortune Global 500 company founded by billionaire Yan Jiehe — held an 80% stake in the project company, Nanyang Construction, with the Guigang city government holding the remaining 20%.

According to The Paper, which broke the story, the project was built under a “build first, get permits later” approach. Construction began in October 2019, with planning and construction permits obtained only in mid-2020. By December 2020, the local natural resources bureau had already issued the first administrative penalty for incomplete land procedures.

The project’s fundamental flaw emerged in September 2023, when China’s Ministry of Natural Resources named the Nanshan Project as one of 56 major illegal land-use cases nationwide. The ministry found that the project had illegally occupied farmland to create artificial lakes and landscaping features. Of the 2,431 mu (about 400 acres) the project covered, only 268 mu — roughly 11% — had legally approved land use permits.

The Cost of Non-Compliance

By the time the violations were exposed, Nanyang Construction had already invested approximately 550 million yuan ($76 million) into the project, including 390 million yuan ($54 million) in bank loans. The government had contributed just 26.58 million yuan ($3.7 million). The park had opened to the public in September 2022 and become a popular tourist attraction, drawing 80,000 visitors in its first three days during the Spring Festival. But within months, the site was ordered to halt construction on unapproved land, and much of the developed area was demolished and returned to farmland.

A Nanyang Company representative told The Paper: “We never imagined the government would breach the contract. Because the contract clearly stipulates that construction land would be provided by the municipal government through allocation free of charge, and the government would handle land acquisition, demolition, compensation, and related approval procedures.”

Who Bears Responsibility?

The central legal question — who is responsible for obtaining land use approvals — became the crux of the dispute. The PPP contract explicitly stated the government would provide land and handle approvals. However, the Guigang Urban Management Bureau argued in court that Nanyang Construction, as the project owner, was the legally responsible entity for submitting land use and planning permit applications.

The court sided with the government, ruling that Nanyang Construction bore responsibility for failing to properly handle land approval procedures, and that the Urban Management Bureau did not constitute a “material breach” of contract. The court also found that the government’s adjustments to the project’s construction content were “reasonable and justified.”

Nanyang Company’s lawyer criticized the verdict, saying: “The judgment virtually ignored the clear stipulations in the PPP contract and implementation plan regarding land responsibility and risk being borne by the government side. It completely sided with the administrative authority.”

A Broader Crisis in China’s PPP Model

The case is emblematic of a wider crisis in China’s PPP sector, which ballooned to over 14,000 projects worth 20.9 trillion yuan ($2.9 trillion) by 2022. As local government fiscal strain has intensified — driven by declining land sale revenues — many municipalities have struggled to meet their PPP payment obligations.

In 2024, China announced a major debt resolution package, including 6 trillion yuan in additional local government debt quotas and 800 billion yuan annually for five years from special local government bonds. In August 2025, the State Council issued new PPP guidelines emphasizing that local governments must honor contracts and encouraging negotiation between parties, as documented in the official government notice.

Yet implementation at the local level remains uneven. An anonymous PPP project manager from a state-owned enterprise told The Paper: “At the central policy level, the debt resolution policy is relatively clear, but when it comes to local governments, the thinking on debt resolution remains unclear. For enterprises, the only option is litigation.”

A senior lawyer specializing in PPP cases added: “In practice, most disputes between social capital and local governments have to be resolved through litigation. But in the process, there are problems with case filing, trial, and enforcement. Overall, litigation may not be the best path for enterprises — it’s a last resort.”

What’s Next

Nanyang Construction has stated it will appeal the verdict. The case is being closely watched by thousands of private companies involved in China’s massive PPP market, many of whom face similar challenges with local government partners. The outcome of the appeal could set an important precedent for how China resolves the growing backlog of troubled infrastructure projects — and whether private capital can trust government contracts in the world’s second-largest economy.

For now, the Nanshan park sits desolate. Water features have dried up, weeds have overtaken the landscape, and equipment has been stolen or fallen into disrepair — a stark monument to the risks of doing business with local governments in an era of fiscal tightening and regulatory crackdown.