Research On Issue Of Local Government Financing Platform Corporate In China

Local government financing platforms began to emerge from the late80s of last century in China. Until the end of2008, the public had been concerned greatly by LGFPs when the appearance of national counter-cyclical economic recovery plans by Chinese central government. Objectively, the local government financing platforms have played a positive role in some respects, such as in response to exogenous economy shocks to preserve the stable and rapid economic development, and accelerate the pace of infrastructure building investment, and balance inter-generational distribution of the costs and outcome, and boost urbanization, and optimize the hard and soft investment environment to enhance the development potential, and ensure promoting the equalization of public services and the livelihood, and innovate investment and financing system to speed up local economic construction and development.However, the local government financing platform also exposed serious problems in the international financial crisis. For example, debt peak siege will emerge in next two years, corporate governance is not standard enough, risk accumulation in the midwest. In addition, in Iceland, Dubai, Spain, Italy and other Asian-European countries, the serial eruption of sovereign debt crisis cause a great concern of the national leaders to the debt of local government financing platform and national economic security from2008. Therefore, research for the local government financing platform to national economic security, and reform, development and stability, national economic growth sound and increasing, and seizing the strategic opportunity to achieve "from rise to transcend" for China is of great significance.This paper attempts to describe the fundamentals of local government financing platforms from classification features, the historical evolution, and the debt channel. And then research tools as well macroeconomic analysis, as micro-financial alienation behavior were used to expose deeply the reasons of debt expansion of local government debt financing platform from motion, motivation, excuse, opportunity, boldness, and channel. At last, departure from the perspective of the government, the solutions of the debt problems of local government financing platforms were discussed in the basis of multi-angle, multi-channel, multi-orientation. On the other hand, considering banking industry is the core of China’s market economy, and the banking sector’s financial risk profile impacts on national economic security profoundly, this paper explores the measures of risk management and control to LGFPs’loans from the perspective of the banking industry.The chapters of this paper are organized as follows:The first chapter is introduction. In this section, a general introduction is given to the research background, research significance, definition of research objective, research methods, organizational structure, and the technology roadmap.The second chapter gives an overview of local government financing platforms. This chapter describes the types, characteristics, historical evolution, and the financing channels, providing the necessary background to be accountable for the later chapters.The third chapter reviews the roles and issues that local government financing platforms play. Based on the description of aforementioned section, this chapter discusses the positive role of China’s financing platform and the problems in detail, in order to sort out the issues for the later analysis.The fourth chapter offers the theoretical analysis of local government financing platforms of debt expansion. This chapter digs the root causes of platform of debt expansion from the six aspects of motion, motivation, excuse, opportunity, boldness, channel, and combs the inner mechanism, so as to set a target and propose a countermeasures for later chapters.The fifth chapter discusses government departments and local government financing platforms for debt management. Based on the perspective of the government sectors, this chapter aims to explore governance approach to government-led debt financing platform for China’s national conditions, from reversing the performance evaluation-oriented, promoting fiscal and taxation structural reform, improving government accounting system, expansing local bonds issue, and strengthening the platforms’standardize management. The sixth chapter explores commercial banks and local government financing plat-form loans’risk management and control. Based on the angle of banking sector, this chapter analyzes the risk of credit assets of local government financing platform. And LGFPs’loan risk control approaches are explored from strengthening pre-credit approval, enforcing post-credit management, restarting the securitization of credit assets, extending the maturity of LGFPs’loans banking industry.The seventh chapter is conclusion. On the basis of the foregoing chapters discussed, this chapter summarizes the main conclusions, innovations and contributions of the full text, and the possible direction of future follow-up study.This paper obtained the following main conclusions:1. Platform’s debt expansion is caused by joint effect of the six factors. Speed-up of urbanization process makes infrastructure investment become a motion; GDP as the key promotion-evaluating criteria is the motivation of local government lead infrastructure investment; rights asymmetry under the tax system is an excuse for local government borrowing to finance investment; easing fiscal and monetary policy is an opportunity to huge-scale borrow for local government; soft budget constraint is the blodness of over-borrowing for local government; setting up a financing platform for the SPV, and making government debt off-balance-sheet, is an effective channel to circumvent the existing legal obstacles.2. For platforms’debt problems, financial risk is only superficial, and the fiscal risk just be the reality. Local governments borrow a large number of medium-term debt financing platform, but considerable part debts is devoted to the construction project that cash flow payback period is too long or not so ideal. Thus the term structure is mis-matched, and the debt maturity due to inability to cause the anxiety about non-performing assets and bad debts are surging in banking sector.3. The distribution of risk is unbalanced and asymmetry. Platform debt risk is not evenly distributed across the country, showing a significant difference in different regions and different platform levels. Specifically, from a regional perspective, the concentration of risk is mainly concentrated in the central and western regions of the financing platform; from a level perspective, the risk is concentrated in the city-county level of financing platform. Therefore, the platform debt risk of depression is located at the intersection of these two risk concentrations----the city-county level financing platform in central and western regions. The debt governance objectives of financing platform is even more accurate positioned, and the focus is firmly fixed on the debt of the financing platform in central and western cities and counties, so as to impose "surgical" risk management and control.4. The platform debt management goes through the control concept of multi-angle, multi-agent, and multi-dimensional. Governing the financing platform debt must go ahead with the times, overall plans, innovations, and abandon the outdated concept of one-sided, isolated, and static. Both basing on present and looking to the future, both short-term strict pre-cause against another long-term planning, both macro focus and micro proceed, the root reasons will be found, and symptoms will be treated. Government departments need to reverse the performance evaluation-oriented, and improve government accounting system, and reform the existing taxation system, and expand the local government bonds issue. Local government financing platforms should be standarized and rectified, and be reformed, upgraded and transformed. The commercial banks should adjust business structure to promote risk management and control, and the maturity of platform loans should be allowed to extend.5. The situation of platform debt risk is grim in the short term, but platform debt risk is controllable overall in the long run. The summit of due platform debts siege will emerge in the next two years, existing cash flow of the financing platform is difficult to resist waves of impacts of the maturity of principal and interest. Thus the situation is really not so optimistic; we can not be taken lightly. Given appropriate extension to the financing platform, then the financing platforms debt risk is overall controlled. On the one hand, after standardization, financing platforms will be injected capital and enhanced credit, and financial strength be increased. Moreover, with the investment projects of cash flow gradually go on the right track, the solvency to principal and interest of the platforms debt will be greatly improved; on the other hand, the banking industry restructure its business to find a new growth point, and bank profits that is snowballing growth can digest bad debts converse from financing platform loans. More reassuring, ten billion of state-owned shares and natural resources that handed in the government are a guarantee to platform debt. As long as the Chinese economy would growth steady, platform debt risk is exactly controlled in the long run.