China's Local Government Financing Platform Risk And Prevention Research

Local government financing platform is an outcome arising with the development of our economy,which plays an important role in urbanization and industrialization as well as supporting local development by collecting huge funds for urban infrastructure and utility construction.Facing the challenge of financial crisis in 2008,our economy adopts the policy of moderately easy monetary policy and positive financial policy.Under such environment,local financing platform sprung up in cities of all scales.However,problems and risks emerged gradually among local governmental platforms when propelling the whole economy forward,such as over lending,high liability rates,narrow fund raising channel,unfulfilled funds,incompliant guarantee by local government,defective governance and lack of risk alerts.If it cannot be curbed effectively,local financing platform's risk may trigger default risk and brings along systematic risk of local fiscal and financial system,even social turmoil.Nowadays,financing platform's risk has attracted lots of attention by the society.Fiscal and monetary regulation institution is cleaning up and rectifying the platforms.This article focuses on the risks and preventions of local governmental financing platform,aiming at analyzing and evaluating financing platforms objectively.The analysis is developed based on the logical traits of platform emerging background,developing path,debt bearing situation,risk assessment and early warning,as well as risk prevention,along with the analysis of governmental debt risk prevention of other countries,we reached the conclusion of local governmental financing platform risk prevention suggestions.The body of discussion covers:Article one covers the brief introduction of the whole theme,including research background,method of analysis,literature review,logical traits and points of innovation.Article two is the theoretical analysis of financing platform development,looking from the angle of laws and regulations,reform of tax sharing system,urbanization acceleration and government staff performance evaluation and motivation mechanism,we witnessed the process of financing platform emerging from nowhere,from high speed expansion to comparatively regulated.Also we analyzed the function,financing channel of financing platform,and other theories on financing platform development.Article three depicts the debt status of local governmental financing platform,analyzing the scale of debt,distribution,debt borrower,fund sources and compared with the experience of debt management of developed countries,and point out the issue of regulation violation.Article four is the risk analysis of local governmental financing platform from the perspective of regulation and compliance,local government,financing platform and commercial banks,based on which we reached the effects on enterprises,financial system,society and local government.Article five is the research on local financing platform risk assessment and alerts.First we apply the KMV risk econometric model to the risk assessment of listed and unlisted financing platforms,and then we established a local financing platform risk alert system which based on 18 index,including liability rate,overdue liability rate,debt increasing rate,asset-liability ratio,quick ratio,rate of return on net assets,operating profit ratio,etc.concerning local governmental debts and financing platform.After that we collect data from 70 listed and 467 unlisted local financing platform companies,computing their probabilities of defaults for the empirical analysis on risk alerts.Finally we come to the conclusion that as a whole the liability risk is under control,but there is high risk of default within some platforms.Article six introduces the experiences on local governmental liability risk prevention and management from the U.S.,Japan and Brazil,etc.and provide us some enlightenment on risk management.Article seven reached to the conclusion and Policy Recommendations of our whole thesis.First we summarized the conclusion on financing platform risk analysis,that is,as a whole our local governmental financing platform is under control,but partial risks and policy adjustment risks still exist.Second,we raised suggestions from the perspective of local government,financing platform and commercial banks,serving as reference for preventing local governmental financing platform risks.