Financial Analysis Of Chinese Local Government Investment And Financing Platform

In accordance with such laws and regulations of our country as the Budget Lawand Guarantee Law, the local government shall not list the deficit, lend from the bank,issue the bond or provide guarantee for the corporate financing. However, as theeconomy continuously grows, the level of urbanization constantly increases, and thescale of investment in local infrastructure construction ceaselessly expands, the localgovernment objectively need resolve the short-term insufficiency of financial fund fordemand of investment in infrastructure construction, thus the investment andfinancing platform companies of the Chinese local governments emerge as the timesrequire.This paper probes into the financial analysis of financing platform companies ofthe Chinese local governments. Combining the case study of H company andanalyzing from the perspective of the investor, it explores the credit risk of thefinancing platform company and the hidden risk of government debt by bothqualitative and quantitative approaches, providing reference for related research intothe financing platform companies and investment choices of the investors at thefinancial market. First, it sorts out the literature studying the financial analysis and theinvestment and financing platform companies of the local governments at home andabroad. Then it introduces the status quo, features and types of the investment andfinancing platform companies of the local governments, discusses the financialanalysis approaches for the investment and financing platform companies of theChinese local governments, and extracts the analysis approach covering the fourperspectives including fundamentals of the local governments, the companies’ ownfinancial status, relatedness with the local governments, and the government support.After that, this paper launched the case study of H company. First, H company asthe research object is described, and detailed financial analysis of H company is doneby adopting the four-perspective analysis approach above and combining bothqualitative and quantitative factors. Finally, this paper describes the researchconclusion of the case study of H company, reaching the comprehensive evaluationand risk prompt of H company and extracting the financial analysis thought of thefinancing platform companies.After study, this paper finds that financial analysis of the financing platformcompanies shall not only start from themselves, but also follow the logic order ofmacro-economy, local finance and the fundamentals of the financing platformcompanies, combining the investigation into the fundamentals of the localgovernments and the traditional financial analysis of the financing platformcompanies, and comprehensively considering the difference between the financingplatform companies and the financial indicators of the normal operating enterprises,thus accurately evaluating the credit risk of the financing platform companies and thehidden risk of government debt.