The Study Of The Loans’ Risk Level Concerning Government-related Fund-raising Enterprises

In order to handle the severe world financial crisis, at the endof2008, the national government of China issued an economic stimulationmeasure of4,000,000,000,000RMB loan, which directly incur the rise of9,590,000,000,000RMB loan from Chinese banks. Among the borrowers in thehighway of the loan process, local government-related fund-raising becamethe most active, most conspicuous, meanwhile the most remarkable borrower.Trying to be connected with the central government’s economicstimulation measure, many local governments began to apply loans toimmensely invest in the basic infrastructure construction through theirstart-up enterprises such as Construction&Development Company,Investment&Development Company, Investment Group ect., although theyhave very limited fund. This definitely contributes to the China’snational strategic goal of “Guarantee the boost, expand the domesticdemand”. However, it also causes problems----fund-raising scaleexpanding too fast, the increase of potential risk of public finance,management not being regulated.The great number of loans and the rapid increase of loans attractsthe attention of the administration. They also become worried about that.From the beginning of2010, the banks has been limiting the loans ofgovernment-related enterprises’ fund-raising. The priority is tocontrol and limit the total amount. First, the banks’ head offices takeback the loan power they have once given to the branches before. Then,they promote the application level, they refuse any county-levelgovernment-related enterprises’applications for loans, meanwhilecontrol and limit the municipal level. Control from within is graduallytransformed into the limit from the administration and national level. Finally, in June2010, the national government demanded that the localgovernments of any level check the government-related enterprises’ debtsthoroughly. The local governments should handle in categories, treatdifferent enterprises with different measures, so that thegovernment-related enterprises can pay the debt back in order and in thedue time. They can also guarantee the fund of the projects in construction.Eventually, the administration of the fund-raising of thegovernment-related enterprises and the loan of the financial institutionsuch as banks can be strengthened.Based on a case study of an enterprise, with the guidance of the basicrisk evaluation, through applying modern risk control theory into thegovernment-related fund-raising enterpises’loan,this article analyzethe enterprise in details, articulate the specific steps to control theloan risk of the government-related fund-raising enterprises, so thatbanks can manage the basic risk points well, and finally realize thewin-win between the bank and enterprise based on the integrated evaluationof the risk of enterprises.