Local Financing Platform Specification Development Countermeasures Study In China

Since Chinese government carried out the reform of finance and taxation system on the core of distribution of tax in1994, the ability of local governments to get fiscal revenue has been greatly weakened. As a result, a channel is badly needed for local governments to finance the infrastructure construction and public service, which gave rise to local government financing platform. After Asian financial crisis broken out in1997, Chinese government adopted a range of positive fiscal and monetary policies to stimulate the economy. To meet the capital request given by the central government, local governments began to make use of local government financing platform to raise funds. Owing to this, the quantity of local government financing platforms largely increased, which is particularly obvious in the21st century. To prevent the recession caused by the financial tsunami erupted in2008, Chinese central government launched the Four Trillion Investment Plan to stimulus the economy. Among the Four Trillion Investment, the central government only need to provide1.2trillion of the total funds while the local governments had to raise the rest of it. Owing to the tax sharing system reform starting at1994, the finance power of the local governments has been badly impaired. As a result, the local governments set up plenty of financing platforms to raise funds. Obviously, these platforms took an important part in the economic recovery. However, as time goes by, the platforms appeared to face serious risks since that the local government got into such a large amount of debt. The essay tries to work out problems including causes and current situation of the financing vehicles, and then find ways to solve it through research.Firstly, this essay will analyze the inherent defect of the fiscal and investment reform, thus search the roots of the financing platforms. Then based on the development of these vehicles, this paper find three main types of risks appeared. At last, the deficiencies of current policies will get stated briefly on the basis of research on them.The second part will focus on the success experience of foreign governments on dealing with local debt. Several discussions are made among limits of debt and financing models and management systems and supervision mechanism and risk mitigation. Their different features as well as the meaning to our country will also be discussed here.In the end, according to the discussion above, the essay will refer to the overall train of thought and concrete measures in order to solve the problem.