Risk Analysis Of Financing Platform

After the financial crisis in Asia, with the increasing nation-level investment tostimulate domestic demand, the local government financing platform has developedextensively in quantity and scope. Such financing platform has motivated theinvestment in the construction of infrastructure and sped up the process ofurbanization, which brings positive forces for expanding of China's internal need andpromotes the growth of bank loans. Meanwhile, the financing risk of the localgovernment financing platform has drawn attention of different levels of supervisiondepartments and the society. Since 2010, the central and relevant administries havesanctioned a series of documents and measures on standardizing financing platform.Experts and scholars have also conducted research on the financing platform riskmanagement and countermeasures. In this context, through examining andsynthesizing real examples, this paper assesses and analyzes the financing platformrisks from the perspective of commercial banks and provides insights into theself-construction of financing platform and the direction of future financing.The outline of this paper is as follows:This paper first summarizes the development procedure of the local governmentfinancing platform, analyzes the function of financing platform and its risks, andpresents methods adopted by foreign local governments in preventing and controllingdebt risks.Then, considering the fact that currently the main financing method of localgovernments is to bank loan, from the perspective of commercial banks, this paperuses hierarchical analytical methods to develop a model for commercial bank on localgovernment financing platform's evaluation of company risks and uses examples totest the feasibility of the model. Based on the model, solutions were suggested for thelocal government to control the loan risk of financing platform.Next, from the perspective of the local government financing platform, the paperprovides some thoughts on how to improve the platform and solve problems related toplatform loans.This research is innovative because it designs a risk evaluation modelspecifically for companies of the local government financing platform. Such a modelcan function as a measure of risk level of the financing platform and as a mainreference index of credit for commercial banks.