Research On The Contagion And Identification Of Credit Risk From Land Market To Local Government Financing Platform

With the accelerating urbanization process in China, the local government’s own finances can’t meet the demand of urban construction funds. Therefore, the local government financing platform becomes an important support to undertake the urban infrastructure and public facilities operation, and to ease the financial pressure. Whether it comes to government funding, mortgage or business, financing platform risks and land markets have a close relationship.This article focuses on the land market on the local government financing platform for credit risk. First, we sort out the mode of operation of the local government financing platform and find out the factors of the financing platform’s credit risk. Secondly, we study on the contagion mechanism from the land market to the local government financing platform credit risk and propose four credit risk contagion paths including land trade paths, land mortgage paths, land capital injection paths and real estate business paths. We consider that the land market will affect the financial indicators of company assets, profitability, solvency and further become the financing platform credit risk through these paths. Finally, using KMV and PFM model, we propose a risk regression model applied to the local government financing platform based on the contagion mechanism from the land market to the local government financing platform credit risk and confirm the land market fluctuations in other financing platform for credit risk infection mechanism. According to the model, we further calculate the credit risk of listed and unlisted financing platform companies in Shanghai, forming a complete methodology to assess the credit risk of local government financing platforms.