The Financing Effect Of Securitization On The Development Of Basic Industries In The West Region Of China

Abstract of DissertationAt the beginning of the new century, our government forwards "the strategy for western development", beginning to transfer the economic growth focus from the east region to the west region, which provides good opportunity for western provinces to speed up their basic industries. But, the development of basic industries faces great difficulty, because basic industries require substantial capital inputs. The purpose of this article is to discuss the practical impact of the latest financial instrument--asset securitization--on the financing of basic industries in the west region of China.The chapter one starts with the current financing framework of basic industries in the west region, and states the urgency for new financing vehicles for the economic development of the west region. Basic industries, referred in the article, include infrastructure (such as road, expressway collecting fees, railway, airway etc.), energy industry (such as oil, natural gas, electricity etc.), and row material industry (such as iron & steel, chemistry etc.). Basic industries are "social overhead capital" and most of their products are public goods or quasi-public goods, so the level of basic industries is in direct relation to a country's or a region's other industries, ever to the whole economy. However, the traditional financing methods in the west region, depending solely on national treasure allocation, cannot meet the substantial capital requirement of this region. Therefore, it is very urgent to search for new financing channels for basic industries in the west region of China.Chapter two gives an introduction to the latest financing vehicle for basic industries in the international capital market--securitization on basic industries, and some successful experiences of some countries who used this vehicle to service the money-collecting of basic industries. Securitization on basic industries is a way for the companies who operate the basic industries, to borrow money for their projects on the strength of the resulting proceeds from the products or services sales. As a typical direct financing method, securitization can gather large long-term capital from wide capital markets, so it can meet the requirements of basic industries for capital amount and match up with the term structure of project construction. At the same time, securitization on basic industries liquidates the proceeds at the initial stage of project construction. That is the reason why it has become the most popular financing tool for basic industries in only a few years.Chapter three introduces the favorable conditions, operating methods, and critical problems worth for special attention for the west provinces to finance their basic industries with securitization. The chapter also makes comparison of securitization on basic industries with other financing instruments. The article thinks that the west provinces can use securitization to finance electricity industry, communicating industry, oil and natural gas industry and so on, because these industries have stable proceeds in the operating period. Compared with treasure allocation, bank loans, common stock, bonds and BOT, securitization shows several advantages in basic industries financing, such as low costs, beneficial tax arrangements, sufficient capital amount and so on. So it will play a special role on the development of basic industries in the west region of China.The last chapter briefly analyzes two unfavorable conditions, which will restrict the realization of securitization on basic industries in west region. One is the defect of market efficiency, such as the less developed domestic capital market, the unreasonable price system for basic industries. The other one is the defect of regulations, which mainly refers to the lack of related regulation or law interpretation.