The Legal Control Of The Debt Financing Risk Of Local Government Financing Platform Companies

Local government financing platform companies are the products of the reformof government investment and financing system in China’s urbanization process.Local governments organize and establish local government financing platforms forthe construction of urban infrastructure to meet the growing urbanizationconstruction requirement. On the positive side, with the rapid advance ofurbanization and rural population’s migration to cities on an unprecedented scale,local governments’ financing through financing platform companies and investing inurban construction can promote the development of urbanization. However,considering from the overall economic operation and microscopic risk control, therising local governments’ debt brought by the financing of local governments’financing platform companies has obvious risk. Therefore, directed by the principleof economic law and commercial law, combining legal and economic theory withpractice, focusing on the debt financing of local government financing platformcompanies and analyzing specific financing operation mode as the starting point, thisthesis analyzes and researches the risk control of local government financingplatform companies from the aspects of origin and legal system so as to regulatetheir development from system.This thesis is divided into four chapters and its logical structure is as follows:The first chapter is the generation and operation of local government financing platform companies. Firstly, this chapter analyzes the background and cause of localgovernment financing platform companies’ generation, and sorts out theirdevelopment context through a series of the regulator’s normative documents, inwhich contain the policy maker’s good vision for their development regulation, andalso reveal the irregular and risk in practical operation. Then, analyze the operatingmechanism of local government financing platform companies in the aspects ofsource of capital, model of debt financing, use of capital and source of payment andmake a comment on the status quo of development of local government financingplatform companies. Since the outbreak of the financial crisis, China’s localgovernment budget deficit pressure continues to increase, for which the Europeandebt crisis can be taken as an important warning.The second chapter is the main risk caused by local government financingplatform companies. The risks caused by bank debt financing mode in the operationof financing platform companies are mainly concentrated in two major areas of fiscalrisk and financial risk. Therefore, the research of this part is mainly focused on fiscalrisk under local governments’ guarantees or caused by enlarging in-debt scale andfinancial risk caused by expending bank credit quota. Fiscal risk and financial riskconduct separately through different risk pathways and have different affect indifferent areas, both having a negative effect on the operation of the macro-economyin the end.The third chapter is exploration and analysis of the cause of the risk of localgovernment financing platform companies. This chapter intends to analyze the lackof relevant legal system in the operation and financing of current local governmentfinancing platform companies, so as to deeply explore the cause of the risk of localgovernment financing platform companies. For just a few years, platform companiesstage a repertoire exactly the same with traditional state-owned enterprises in theaspects of credit quota and management operation. The main legal issues exposed byfinancing platform companies are as follows: lack of government debt managementmechanism under local governments’ soft fiscal budget constraint, unsoundness ofthe establishment and governance mechanism of financing platform companies and institutional defects of loan guarantees.The forth chapter is the legal countermeasures of the risk prevention of localgovernment financing platform companies. This chapter gives suggestions on thelegal countermeasures of the risk control of local government financing platformcompanies in the aspects of finance operation, internal control and externalconstraint of local government financing platform companies, including fiscalbudget constraint on governments’ financing, regulation of the establishment andoperation of local government financing platform companies such as access system,improvement of governance mechanism, establishment of internal risk control andearly warning mechanisms of local government financing platform companies and soon, strengthening of the supervision of commercial bank credit through perfectingthe classified management system of platform companies and strengthening loanproject review procedure and post-loan supervision, guarantee of governments’sinking fund for credit debt.