The Law Control Study Of The Risk Of Local Government Financing Platform Company

In2009, in response to the financial tsunami, the central government introduced a4trillion RMB investment economic stimulus plan, of which2.82trillion investment isallocated to local governments to complete. However, the financial power of localgovernment has been greatly reduced in the tax system reform, which led to the localgovernment can’t afford such a huge investment rely on fiscal revenues alone."Budget Law"also stipulates that the Government shouldn’t float a loan, so local governments usuallycircumvent this law in disguised form to raise money, local governments setup variousfinancing platform companies to get loans from bank using revenue from land transfer and soon.The act shows that in the short term the local government financing platform companiesreally work in solving the financial difficulties to raise funds. It played a huge role ininfrastructure construction and revitalizing local economy. Loans must be repaid, however, forthe financing platform of local government, most of their projects is public project whichrequire huge investment and just gain little income, it can’t recover the cost in short-term. Thelocal government finances itself loan guarantee is also limited. Face to the gatheredrepayment deadline in the past two years, if both government finances and financing platformare unable to repay loans that time, it will lead to the government credit risk, even conductedto the entire banking system, result in the risk of financial system.The risk of local government debt has been valued by all, but the scholars were alwaysfocus on the control of local government direct debt risk, and pay less attention to the indirectdebt. In recent years, with large-scale rise of local government financing platform, the debtrisk of local government financing platform company keep attracting great attention of theMinistry of Finance, the People’s Bank and other departments, scholars have also proposedsome practical theories and measures. But current research areas are mostly concentrated inthe field of finance, economics, finance, accounting, management, legal research has been leftbehind. Many measures have been put forward such as improving government investment;improving the bank credit and supervision system; issuing municipal bonds; reforming the taxlaw and budget law, most of these measures are feasible. However, I took thought that incurrent nation-building, as the primary means of social control, laws should play its due rolein controlling financing platform company’s debt risk. In this article, I studied the debt risk of financing platform-company, one of main formsof local government financing platform. Concluding with some proposed legalcountermeasures to controlling the debt risk of local government financing platform-companyfrom both internal view and external view, The internal view corresponds to improving thefinancing platform company’s corporate structure, The external view corresponds to theprivatization of financing platform project and the Government should give rescue dependingon the circumstances. At the same time, starting from a legal point of view, I put forwardsome feasible measures and suggestions for local government financing platform company torespond to debt risk countermeasures and to look forward to release of local governmentfinancing platform debt risk which is the most striking, but also I hope that the financingplatform company can work healthy in the regulatory environment of internal governanceinstitutions, and continue making contribution to the Chinese people’s livelihoodinfrastructure construction.