On Local Government Investing And Financing In China

Government investing and financing appeared at the end of 1940s, and closely linked to fiscal and financial sector, has always been the focus of governments. Government investing and financing is mainly for the basic industries and utilities which are closely related with the economic development. The characteristics of these projects made private sector has difficulty or unwillingness in providing them, such as large-scale investing, long construction, and low-profit or no profit. Government investing and financing of these projects, in pursuit of optimal allocation of resources, to achieve the maximum economic and social benefits.In order to solve the drawbacks of investing and financing system, since 1979, China began to try to explore new investing and financing system. Since the tax sharing reform policy was adopted, the central and local government's financial power has been initially cleared, the local government has become a relatively independent interests body. But financial power concentrated in the central government, the contradiction that local government financial power cannot match its duty became more significant. The government budget law does not permit local government issuing local bonds, but in the meanwhile local government has the responsibility to financing infrastructure, thus how to raise capital is a hot potato that local government has to face. Bundling loans, land finance, local government investing and financing platform for investing and financing mainly came into being.In order to tackle the financial crisis in Southeast Asia in 1997, the government expanded its investing in infrastructure, local government investing and financing platform stepped into the promotion stage, and became a major way to break the bottlenecks in local government's financing. During the development of the platform, a number of problems arose, the most important problem is the lack of effective supervision and risk prevention to the platform. These problems led to the poor performance of the investing and financing, which contrary to government's expectance. Therefore, how to preventing local government investing and financing debt risk, and improving local government financing system are important problems that should be hammered away at. Research on local government investing and financing mechanism has important theoretical and practical significance.This article discusses the topic based on the method of systematic of theory and practice, history and future development, analysis of and solvency of the problem.Firstly, the article introduces the background of local government investing and financing, the research situation at home and abroad, in order to obtain a preliminary understanding. Then the article analyzes the significance of these theoretical achivements to the local government investing and financing in our country. Meanwhile, the article discusses the important role of government investing and financing in local economic development by combing the functional characteristics of government investing and financing.Based on the above theory, the article does detailed description of the development of local government investing and financing platform, the domestic and foreign experience, the necessity in our country, for further analysis about the problems. At the same time, the article gives a brief introduction on Chongqing model, Shanghai model and Tianjin model, to provide experience for reference. Next, the article does empirical analysis on local government investing and financing of Sichuan province, including the necessity and the basic situation of investing and financing. Through practice, the author extracted the main problems from the investing and financing system. Besides, this article introduces foreign government experience, for the following to put forward a sound investing and financing mechanism. In this section, focuses on U.S. municipal bonds, Japan's fiscal financing and municipal bonds combination.Finally, the article proposes policy recommendations. In short term we can improve the current system of local government investing and financing, improve the local taxation system to strengthen local government finances, and intensify investing and financing platform, innovate diversified financing model, against local government's financial risk. However, these policy recommendations can not essentially solve the problems, in long term I suggest the implementation of local government debt, which allow local government to issue local bonds. In this article, I do specific analysis and research on local bonds issuance, including economic analysis of local bonds, the necessity and feasibility of its issuance, the design of local bonds system, and so on.The innovation of this article may be the following features:Firstly, this article does a comprehensive analysis on background, causes, development, growth, problems and other aspects of investing and financing, try to do a more systematic introduction.Secondly, local government investing and financing is a relatively new subject, previous studies mostly stand on the financial perspective, this article attempts to analyze mainly from the financial point of view, it is a combination of fiscal discipline and financial discipline.Thirdly, on how to improve local government investing and financing mechanism this article proposes feasible policy recommendations. In short term, without changing the existing model of the situation, I propose related policy recommendations against the problems. However, from the nature to solve the problems, I propose the issuance of local bonds. The article discusses from theory induction, condition analysis, system design and other aspects, basically form a relatively more perfect research framework of local government bonds.The inadequacy of the article maybe the following points:Firstly, local government investing and financing is a relatively new field, there is a big limitation in obtaining the first-hand information and data through field surveys, so the investing and financing-related issues discussed in depth and breadth is not enough, especially in investing and financing mechanism of local government, has failed to use the relevant economic models.Secondly, this article studies on improving local government investing and financing mechanism, analyzes problems, proposes solutions to the problems, but in terms of the specific design of the mechanism it is difficult to summarize a comprehensive, which requires continuous improvement in future.Finally, the article designs a complete set of system to issue local government bonds, but this is only in theory, no empirical research, it is necessary to wait for future local bonds to test.