The Risk And Countermeasures Of China’s Local Government Financing Platform

Local government financing platforms appeared in the late1980s, which experienced a rapid development and a high-speed blowout period, however, as the platform was not operated standardized, lots of risks accumulated. This paper attempts to study local government financing platform under this context, with method of normative analysis, comparative analysis, logic analysis and historical retrospective.The paper begins with the local government financing platform definition and its theoretical analysis, then comes with a comprehensive economic theoretical analysis from market failure, fiscal decentralization, the "golden rule", profitability principle and financing sources. Then introduce and discuss the history, the process of development, the current situation and the reason of development expansion of the development, elaborating its scale and structure, operation mechanism, financing sources and positive contribution to the economy. And analyze the reason the local government financing platform explosion from four dimensions:the political system, the tax system, economic development and policy. After that, comes the risk analysis to the financing platform from the perspective of both internal and external. Internal risks including corporate governance risk, moral hazard risk and investment income risk; external risks including local government guarantees legal risk, risk of changes in macroeconomic policy, land collateral financing risks. On the basis of the risk analysis, we come to the conclusion that final consequences of financing platform risk would be the fiscal and financial risks for the local government. The primary purpose of local government financing platform is to raise funds for local infrastructure, so we describes the experience of foreign countries in the next as to learn from them. At last, this paper presents short and long term countermeasures to resolve the risk of local government financing platform. In the short term, we should make sure of the range of investment and financing of local government financing platform, specify the constraints to the local government financing platform and the local government investment and financing behavior, classify the existing debt, digest the inventory, regulate lending practices of commercial banks and other financial institutions, and carry out asset securitization to optimize the debt structure; In the long term, we need to improve local officials assessment mechanism to prevent excessive investment, deepen fiscal reform, strengthening the financial base of local governments, strengthen supervision of local government debt, develop local bond system and PPP-based financing system. Through this paper, I hope there be some guiding significance for defusing the risks of local government financing platforms and strengthening existing financing platform management in the short time, in the long run it would be the reference to improving local financing system and the formation.