Study On The Transformation Of Chinese Local Government’s Financing Platform

The local government financing platform originates in the late 1980 s and early 1990 s in the last century.Consecutively,it has provided tremendous power for the rapid economic development of China for almost 40 years.Nonetheless,nowadays the development of the local government financing platform has come to the bottleneck,with the gradual revelation of its defects and negative effects of over-reliance.Under the guideline of accelerating the economic transformation by the central government,the speed of economic growth has been slowed down.The past investment-driven economic growth pattern has already changed,and the old management mode of financing platform can no longer fulfill the ever-increasing financing need.Nowadays,the debt of the local government financing platform has amounted to a high level.In addition,the weakness of original financing mode has been constantly exposed and the risks have kept accumulating.Apart from that,the lack of supervision and confusing accountability has led to the increasing risks in this area.Therefore,in the new era of deepening reform and comprehensive transformation,it is imperative to work on reforming and transforming of local government financing platform in China so as to further strengthen the financial supervision and adapt to the current economic development needs.Under the central governmental policy of accelerating the economic transformation,the economic growth is gradually slowed in our country.The past investment-driven economic growth pattern has already changed,and the management pattern of financing platform have been unable to meet the growing demand for financing,combined with the exposure of the failings of the original financing mode itself,the risks have been accumulated continuously.In order to further strengthen the financial management,precaution the systemic financial risks to adapt to current demands of economic development,it is imperative for our country to reform the local financing platform transformation right now.The paper presents an overview of the current research situation,the research on local government financing platform in China is mainly centered on the risk prevention concerning the financing platform and local debt,as well as the internal connection between the financing platform management and operation mode and economic growth.Still,the targeted research of the future development direction of China’s local government financing platform is lacking.In light of this,the paper involves an analysis on the mid-long-term transformation pattern of local government financing platform,in an attempt to provide useful reference for the transformation of local government financing platform.The paper contains the integrated adoption of literature research,normative analysis and case research methods.There are four creative concepts in this article.Firstly,it undertook a different penetration point.Previous discussions are merely limited to the perspective of risk management.As a result,they cannot be widely linked to economic,legal and other related factors.This article focuses on the transformation structure and expands the field of research to a certain extent.Secondly,it provides the overall system with some new materials for theoretical discussion.At the current stage,there is a very large gap in applying theoretical thinking into practice in China.This article takes an objective view on the field of government financing and has carried out a deep analysis on the operation and management to figure out the inherent institutional control problems associated with risk within this field.The conclusions can add some values to theoretical innovation.Thirdly,there is a breakthrough in analytical thinking in terms of analyzing both domestic and foreign financing theory and mechanisms from various perspectives.This has broadened our thinking pathways in upgrading and promoting our own work.Fourthly,it provides a practical basis for research on transformation model with the introduction of classic case study.Overall,the paper is divided into six sections.To start with,the first chapter is the introduction part,containing all the basic information including the research background and significance,and research status at home and abroad.Next,the research ideas,research methods and innovation points are given in the paper.Chapter 2 deals with the theoretical basis.In this part,the theoretical perspectives involved in the article is comprehensively elaborated,ranging from the public choice theory,theory of fiscal decentralization,supply-side economics,principal-agent theory and the theory of fiscal decentralization,etc.The third chapter deals with the evolution and predicament of China’s local government financing platform,coupling with a dissection of the local governmental financing of China.Through collating the daily operation mechanism of financial main body,source of funds and debt levels,a profound reflection about its internal mechanism is given.Subsequently,the fourth chapter contains the transition path and feasibility analysis of local government financing platform in our country,with an exploration into the effective way of transform and upgrading of the financial main body of this type and summarization of the principal drawbacks for targeted discussion later.Chapter 5: Case Study of the Transformation of Local Government Financing Vehicle in China.This part systematically analyzes the experiences and lessons of Guangzhou municipal government financing vehicle reform.Through summarizing,it is found that the reform measures in Guangzhou are diversified and innovative,including both hard and soft constraints.Through reasonable supervision and guidance,its financing vehicle gradually complies to market rules and to achieve higher economic efficiency.Ultimately,the adjustment by the free market forces will replace government direct intervention such that the vehicle will move in a healthy and rational development track.The success of Guangzhou’s LGFV has significant influence in our nationwide development of LGFV transformation and upgrading.Chapter 6: Reform Ideas and Legal Recommendations on the Transformation of Local Government Financing Platform.Based on the past theory and case study,this paper puts forward the reform idea of "marketization and scientization".This means that local government should firstly classify the existing vehicles according to their category and scale,then transform them into a well diversified and marketwise investment and financing in the form of a privately operated or state holding enterprise.Lastly,it puts forward three reform recommendations.They are "standardizing the local government financing vehicle management","constructing the early warning system for debt risk" and "optimizing the capital flow mechanism for LGFV and raising its attractiveness to social capital".