Investigating The Transition Of The Local Government’s Financin Platform

In April2011，Yunnan Road Development Investment co., LTD. sent a letterto the creditor bank, said:"from now on, only not repayment of capital andinterest", the default action quickly sparked local government financing platformfor all kinds of suspicion and worry, local government financing platform problemonce again become the focus of public concern is pushed to in the teeth of thestorm. Early in the second half of2009, local government financing platformsbegan to be highly concerned by the central government, because of its potentialdebt problems and the possibility of causing the financial risk. In June2010, thestate council issued the local government financing platform on strengthening themanagement of the relevant questions of the notice, For the local government to"from the general situation, firmly establish the scientific concept of developmentand the correct achievements view, fully understand the local governmentfinancing platform to strengthen the management work of the importance andurgency of the unified thought, strengthen the leadership, organization,implementation seriously." In face of the new requirements, local governments iscatch every opportunity, positive transformation, promote the governmentfinancing platform standard operation and sustainable development, or go to look,negative coping, like Yunnan Road Development Investment co., LTD. the samelay down and die, it is urgent at all levels of the government knew soberly andprofound thought.This article introduces principal-agent theory and incentive theory which arefrom the information economics, run through the structures of local governmentfinancing platform analysis model to analysis three typical cases. S City ofZhejiang Province local government financing platform is one of the typical cases.By the multi-angle, all aspects of the analysis revealed three major problems that exist in the current local government financing platform operations; those aregovernment action ill-prominent and obvious moral hazard, government financingplatform adverse selection of behavior significantly. This article further combinedwith theoretical tools to consider the possibility and feasibility of buildingtransformation of local government financing platform operating mechanism: asound platform for the corporate governance mechanism transformation of localgovernment financing platform operators orderly fashion platform transformation;perfect binding oversight mechanisms to promote the development of platformspecifications; create a platform for debt service mechanism, effective guardagainst operational risks. Thus, make strong complement to the study of China’slocal government financing platform.This article is divided into five parts:The first part: all theory. Briefly introduce the meaning of this study, theresearch methods and literature review.The second part: operational analysis models and theoretical tools of localgovernment financing platform operations. By structuring of local governmentfinancing platform operational model, using principal-agent theory and incentivetheory to analysis the role of the key stakeholders.The third part: based on S City’s local government financing platformsoperation analysis model and problems, through platform operator S City twotypical cases of profiling reveals the existence of three major issues.The fourth part: the thoughts and suggestions of the transformation of localgovernment financing platform operating mechanism. By combining with thetheoretical tools, propose three major strategies for the transformation andpromote local government financing platform healthy regulation anddevelopment.The fifth part: the conclusion of this study.