Local Government Investment In China

The research on local government investment has long been a weak link in our fiscal research work. This fact is faced with many challenges. First is the shock from the worldwide fiscal power decentralization. Second is the need for local government investment because of the pro-active fiscal policy. Third, the strategic adjustment of our economic structure in the Tenth-Five-Year plan could not be taken automatically by the market, but should elaborate the local government investment function. The scope and structure of government investment need to be adjusted in order to construct public finance. For the reasons above, the topic chosen by this paper undoubtedly has important theoretical and practical values.There are many definitions about investment. The author of this paper believes that investment is a continual capital-forming process constructed by financing(the collection of capital), investment(the use of capital) and recovery (producing more capital). Financing is the base of investment. The chief link of investment is the use of capital, which includes two important issues: scale and structure. Recovery is the goal of investment. To realize this goal, complete investment decision and management are necessary. According to such interpretation of investment, this paper is arranged as follows:Chapter 1 is an introduction. First we define two main concept of this paper: investment and local government investment. Then is the explanation of the research background and analysis method of this paper. Finally we explain the structural arrangement of this paper.Chapter 2 is the analysis of the theoretical basis and the functions of local government investment. As the logical start of this paper, this chapter first answers why we need local government investment, which involves the relationship between public finance and the finance for consumption. It is because the analysis of the productive factors of public finance, the significance of this research has been set up. Whether or not the local government investment should exit from competitive and4for-profit areas is also closely linked with this chapter, and there is detail analysis about it in this chapter. Finally, this chapter discusses the functions of local government investment.Chapter 3 is the discussion of the financing of local government investment. One needs financing first in order to invest. This chapter first clarifies the necessity and practicability of local government financing. Then is the analysis of the features and methods of local government financing. Followed is the positive analysis of the resources of financing (budgetary construction funds, financial working funds, extra-budgetary construction funds, etc). This is followed by the comments on the present situation of local government financing (direct financing channels has been hindered), which leads to the discussion of how to make complete the local government financing system: Developing indirect financing in short run (such as BOT, ABS ), permitting local government to issue bonds in long run. In order to drawn on experiences of developed countries, this chapter introduces the local government financing in Japan.Chapter 4 is the discussion of the appropriate scale of local government investment. The author first defines two indexes of investment scale measurement: absolute scale and relative scale. Then is the analysis of some factors influencing investment scale. The author furthermore makes vertical and horizontal analysis of the changes of local government investment scale, and draws the conclusion that the present local government investment scale is decreasing as a whole, but it is uneven between different areas, more in developed areas than in less developed areas. The author then introduces her viewpoint on proper scale of local government investment: Financial investment should take 30% of total financial expenditure. At last, the author puts forward some measures to keep the local government investment on a proper scale.Chapter 5 is the analysis of t...