A Study On Local Government Financing During Transition Period

As China has accelerated the process of reform and opening and is faced with economic and political change during transition period, economic and social constructions in this country have entered a period of prosperity. In recent years, requirements of accelerating urbanization have stimulated infrastructure needs of local governments. However, due to the reform of revenue-sharing-scheme and the restrictions of issuing government bonds to raise funds for local government, financial funds aren’t able to afford the huge development funding needs in a short term. Therefore, in order to make up for the shortfall of expenditure and meet the needs of promoting local economy and social development, improving people’s livelihood, stimulating economy and domestic demands, some local governments put up disguised circumventions of laws to establish financing platforms by means of land and revenue investment, raise banks funds and mop up surplus funds on the market with local governments’credit guarantees. But in the long term, with long loan period and low investment interest, the great amount of financing platforms’ loans bring great financial burden on the local government finance which bears the repayment liability. Comparing with other government debts, financing platforms’loans are more indirect and concealed, more difficult to control the debt scale and more hazardous. Therefore, local government financing platform is a "double-edged sword".This dissertation discusses five aspects. Firstly, by studying financing platform construction models at home and abroad, comparing with the financing patterns of American, British and Japan and learning their management models’advantages to develop a financing model which is in line with China’s national conditions; secondly, take XX financing platform for example, describe the unstandardized equity structure, personnel structure, debt structure and operation mode and reveal the hazards of its imminent debt risk; thirdly, picture the current situation of financing patterns and organization forms of local government financing platforms, by revealing ownership structure, personnel sources, business nature, operation mode and financing channel to analyze current problems for local government financing platforms; Fourthly, on one side, study systematically on their own problems and difficulties for financing platforms from the internal perspective of financing platform to put forward to a fundamental way to solve the current dilemma, which is, improving the internal management mechanism and introducing external market mechanism to realize diversification of local government financing platforms and take the road of market-oriented operation; on the other side, by starting from the government macroeconomic policy perspective, offer advice and suggestions for establishing the healthy development system of China’s local government financing platforms from policy formulation and policy implementation.