Risk management is a key concern in public-private partnership (PPP) projects and the efficient allocation of risk remains problematic. Previous studies on PPP practices have documented the prevalence of inefficiency in risk allocation. Nevertheless, the nature of PPP risk misallocation has not been quantitatively described and verified. This study examines risk allocation in the Chinese water sector as it supports the highest number of PPP projects. Based on the expertise of 32 senior practitioners, statistical analysis is used to contrast where risks ought to lie in order to maximize risk mitigation efficiency with where such risks actually lie. The results confirm that current risk allocation practices are far from ideal, with the implication that current practices play a significant role in project failure. Details within the data provide insight into how practitioners should modify current risk allocation practices to better achieve risk management optimization. The lesson learned from this study can be transferred to projects in other emerging PPP markets.

In the last decade, China has implemented more public–private partnership (PPP) projects in the water sector compared to other sectors. However, efficient management of risks in these projects remains problematic. While there have been many studies that have examined risks associated with PPPs in China, the experience of local governments with risks has received little or no attention in the literature. Moreover, the stages at which the risks are significant and how these risks are interrelated have not been researched. This paper examines risks as experienced from the local government’s perspective and how they manifest across five PPP stages: (1) feasibility, (2) procurement, (3) construction, (4) operation, and (5) transfer. The interrelationship between the risks across the PPP stages is also examined. Data was collected via questionnaire surveys and interviews, and it was analyzed using quantitative and qualitative analysis. The findings reveal critical risk for local governments and how their impacts vary across project stages. Some of the risks influence other risks both within and across the five PPP stages. The findings provide significant insight into the dynamic nature risks in PPP water projects, which has important implications for practitioners when developing risk mitigation strategies.