Study On Legal Issues Of China’s Local Government Debt Asset Securitization

At the end of2008, the state council unveiled a four trillion economic stimulus plan, which caused a huge investment impulse of local government to reduce Subprime Crisis’negative influence on China. But local governments didn’t have enough money to implement the economic stimulus plan, so they decided to construct infrastructure to implement the stimulus plan by setting up local financing platform to borrow money from banks. During this period, China’s local government debt rose sharply. By the end of2010, the local financing platform collected more than10trillion yuan,80%of which came from bank loans, and local governments’debt ratios was about86%. Up to now, China’s local government debt may have exceeded more than20trillion yuan. Huge amount of local government debt not only affects continuous stable development of China’s economy but also increases the financial risk to our country. As a financing means, asset securitization plays an important role in defusing the risk of local debt. Among the investment projects in local financing platform, there are some assets which meet the requirements of asset securitization. The asset securitization can not only defuse the risk of local government debt, but also guide the private capital and social capital to invest infrastructure projects, achieve the optimal allocation of social resources in a larger scope, and further thriven China’s financial markets. Therefore, asset securitization can be used as a way to reduce local governments’ debt. This paper discusses the local debt legal issues in the process of asset securitization.This paper includes three parts:the introduction, the main body and the conclusion. The main body of the paper is divided into four chapters:The first chapter gives a general introduction on China’s local government debt asset securitization. Firstly, this chapter introduces respectively the concept, characteristics, basic principle and development of asset securitization providing the basis for analyzing the legal issues of asset securitization. Secondly, this chapter analyzes and points out the necessity and feasibility of local government debt asset securitization so asset securitization can be used as an effective method to defuse local government debt risk in China.The second chapter analyzes local government debt asset securitization’s legal relationship in three aspects, including main body, the object and the content of the legal relationship. Compared with other financing way. asset securitization has complicated characteristics which determine the complication of legal relationship. With the introduction of the legal relationship of asset securitization, its rights and obligations become clear.The third chapter discusses the operation of local government debt asset securitization. This chapter analyzes asset transfer, bankruptcy remote of SPV, legal forms of SPV, credit enhancement and credit rating, etc, and sets forth concrete operations of local debt asset securitizatioii from both static and dynamic perspectives.The fourth chapter talks about the legal framework’s construction of local government debt securitization in China. This chapter analyzes the present situation of local government debt asset securitization in China, puts forward issues on asset securitization, and provides legal suggestions on local government debt asset securitization in China.