Study On Financial Control For The Municipal Public Infrastructure Construction Project

With the remarkable basis, pioneering, public and natural monopoly nature, the municipal public facilities are the basis for the urban survival and development and the important carrier of urban economy and social development, which are directly related to social public benefits, the living condition of the general public and sustainable development in urban and rural areas. As quickening the process of urbanization, the demand on the municipal public infrastructure increases gradually. At present, the urbanization level in China has reached above 40%. It is expected that a moderately prosperous society will be built in an all-round way by 2020 with the urbanization level of 65%. With the original urban scale keeping on enlarging, the new cities are forming gradually. The construction of the municipal public facilities is required to be strengthened due to the growth of the newly-built cities and the promotion in the level of original urban modernization. Looking back to the investment development features in China's municipal public infrastructure over the past decades, it shows that it is growing very fast. From 1990 to 2005, the annual investment on the construction of municipal public infrastructure increased from 12.12 billion yuan up to 44.62 billion yuan in our country. On the basis of the comparable price in 2000, the annual investment increased 20 times and annual growth index was 26.4%. The proportion of the investment in the fixed assets and GDP in the whole society has been increasing. From 1990 to 2005, the proportion of the municipal public infrastructure in fixed assets of the whole society increased from 2.7% up to 8.1% and that in GDP of the whole country from 0.7% up to 3.8%, while the annual average growth index in investment in fixed assets of the whole society was 16.1 % and GDP reached an increase rate of 9.7, both of which were lower than the speed of increase in the municipal public infrastructure.With the gradual enlargement of investment demand and scale in the municipal public facilities, the issues that the government shall face include the"bottleneck"- capitals and marketization reform, more remarkably, matching the project construction scale with urban development, reasonable utilization of the project construction capitals, capital benefits, efficiency and appropriation and waste of capitals and economic crimes therefrom such as the graft. In 2003, Mr. Wang Zaosheng, Vice Director of Market Management Department of Ministry of Construction indicated, a few of investment projects by the Chinese government were completed within the budget while most of them exceeded 20%-30% of the budget, even some projects one to two times. The reasons for causing such issues vary in different aspects including a main reason - deficiency in financial control, lower placement of financial control in project management, narrow control range and shortage of financial control system that is an important reason for waste and low efficiency of the project construction. It shows specifically as follows: 1. Irrespective of the local economic growth, the municipal government blindly constructs with bigger construction scale, more financial resources and over demand following big dimension and foreign style. The bigger construction scale leads to idle facilities and waste of land and capitals; 2. A universal phenomenon–"Three highs"exits, that is, high cost, high financing cost and high construction cost of the construction project by financing in early stage; 3. For the purpose of gaining political achievements, due to shortage of risk awareness, the policy-maker borrows a lot of money to overemphasize to landscape, facilities on the ground, newly-built projects instead of environmental sanitation, the underground (pipelines) and matching faculties, which leads to high assets liabilities ratio, the future benefits of the municipal government overdrawn seriously and high financial risks; 4.The difficulties in project operation cause waste due to shortage of project audit, post-evaluation system, system of accountability after the project completion. The infrastructure is a monopoly industry, which has formed a system featuring self-closure and self-cycling. The monopoly in design and construction and operation and competition exclusion cause the low-level quality management and inefficient operation and management and also the capitals can't keep benign cycling. Therefore, financial control shall be established in construction of the municipal public infrastructure, which makes supply and demand (two sub-systems) match and develop in an appropriate way, balancing efficiency and justice and the benefits among stakeholders. This has an important significance in bringing the limited capitals in full play and makes the city develop in a harmonious and healthy way.The scientific and perfect nature of the financial control system is two key factors in management of the municipal public infrastructure construction projects. From the financial point of view, the paper centers on controlling some key processes in project construction, that is, control on profit distribution, investment scale, financing modalities, financing cost, construction cost and capitals and financial risk and establishment of post-evaluation system in the stages of profit distribution and investment among stakeholders, investment, financing, implementation and post-evaluation. The main contents are as follows:Ⅰ. Study on Status Quo. Firstly, it analyzes and summarizes the study on the domestic and foreign status quo of the municipal public facilities and financial control. Secondly, in comparison with the international study horizontally, it analyzes unbalanced status quo of investment control in the development of the municipal public facilities in our country and indicates that the issue related to financial management control is a key reason that leads to the role of limited capitals not being played fully and mismatching construction scale with the economic growth. Finally, it puts forwards the targets, methods, thoughts and main framework for studying on financial control in combination with the status quo of development of the municipal public infrastructure in our country.Ⅱ. Study on Theory. Firstly, it adopts project division theory to analyze the soft budget constraints and financial risks from the government with municipal public facilities featuring public commodities and mixtures. Secondly, it scientifically forests the scale of matching the municipal public facilities with the economic growth by comprehensively adopting trend projection method and gray forecasting theory. Finally, it systematically studies on the financial control system on the municipal public infrastructure construction project with game theory, blur comprehensive evaluation method, financial control theory and relevant theories in economics, which attaches great importance to the combination of the theory modeling with fact analysis and establishes the Index System for Evaluation on Financial Risks and List for Monitoring Financial Risks.Ⅲ. Study on Application. According to the logical processes of the construction of the municipal public facilities, it studies on the establishment and utilization of the financial control system in detail in the aspects of profit distribution, investment, financing, construction, and project post-evaluation.1. Control on Profit Distribution: The balance of the profit distribution is the key factor related to the success or failure of the investment in the municipal public infrastructure construction project and the financial control can coordinate the profit disputes among stakeholders. It puts forwards four principles in this aspect. It uses the profit/risk distribution proportion method for visual enterprises for the reference to put forwards the method for calculation of profit distribution proportion in the municipal public infrastructure construction project. After introducing financing supervision and adopting principal-agent theory and game theory, the Clients can change the profit balance among project contractor(s), financial supervisor(s) and stakeholder(s) by setting up rewards and punishment system.2. Investment Control: The key to the investment control is to determine the reasonable investment scale."Three exceeds"phenomena can be resisted from original source. It scientifically forecasts the scale of the investment in the municipal public facilities in Jilin Province over the past four years by means of trend projection method and gray forecasting theory in the fields ranging form investment gross, government capital, investment structure of social capitals and efficiency of utilization of capitals to determine the infrastructure construction scale appropriate to the economic growth. It determines the principles of control on investment costs and establishes system of control on investment costs.3. Financing Control: In terms of financing, it analyzes such issues as narrow financing channel, shortage of financial capital input, difficulties in bank financing, accumulative difficulties from the enterprise itself and low efficiency of the current financing modality. After analyzing the innovation in the financing modality of the municipal construction project by project division theory and external theory, the paper concludes: (1) For projects with weak external factors, they can recover costs and gain some profits and then change to the operational projects by price reform or setting up collection system; (2) For project with strong external factors, though the government is difficult to use the financial revenues of the current period to invest in the non-operation and prospective operation in a large scale as a public investor, as a public consumption supplier, it can pay the private investors by installment for the purchase of public commodities or services so that is can solve shortage of capital input and reasonably determines the financing costs and reduces the financial risks.4. Control on Project Implementation. The paper analyzes the control of the insiders and loss of capitals in the construction of the municipal public facilities in our country. This leads to the great potential financial risks in the project construction. For identification, protection and distribution of the financial risks in the municipal public infrastructure construction project, it analyzes them by using the blur comprehensive evaluation methods, puts forwards the principles of the distribution of the project financial risks and concludes therefrom that how to distribute the financial risks among stakeholders.5. Control on Project Post-evaluation: Firstly, it states the post-evaluation of the construction of the municipal public facilities and its domestic and foreign development situation, analyzes the importance of the finical information communication in construction project and the existing problems in this aspect in our country, and puts forwards establishment of PIP which is an effective method to improve the information communication in the municipal public infrastructure construction project in our country. Secondly, for the post-evaluation for the municipal public infrastructure construction project, it put forwards the thoughts on establishment of an institution for management of post-evaluation and sets up a complete set of post-evaluation system for the municipal public infrastructure construction project.6. Demonstration Control: After analyzing the financial control of each stage in construction of a Wastewater Treatment PhaseⅡProject, it finds out some existing problems and puts forwards suggestions on correction.