New Thinking Of The Local Government Funding Channel In China

Local government funding is playing an irreplaceable role for local economic andsocial development. The success of Local government getting access to capital to fundsocial construction, not only relates to local economic development and social stabilityand harmony, but also relates to local people’s survival and development.The main capital sources of local government in China are fiscal appropriation, landtransfer revenues, local-government financing platforms, and local government bondsand so on. But as the local government fiscal deficit increased year by year, the financialpressure is obviously high. More seriously was, along with the explosive growth offunding platform in2009, government debts increased sharply, which increased the riskof local government financing, and banks ’ non-performing loan ratio continued to rise.Facing their own inadequacy in fiscal, the debt risks of existing financing methods, andlacking of adequate accesses to financing, local governments need in urgent to find a newway out.There exists a huge gap in the fiscal budget of government in China. Thegovernment needs the power of social capital because the Public Service that leaded bygovernment has been trapped. Recent years, our government has introduced policies toencourage private investment and open access to private capital gradually. The StateCouncil has released the New36to enable private capital entering larger investment field.As a supplement for government financing, private capital will show its strong advantagein fields of infrastructure, public service and social programs, enhancing the healthydevelopment of whole society.This article puts insight on abroad to find new way to solve the financing problemsof China’s local government. Then it introduces a relatively new financing tool, SocialImpact Bonds (SIBs), as a breakthrough in widening the financing channels for the localgovernment.Large amounts of data are used in this article to clarify the fiscal status andfinancing methods of local government, raising the issue of the difficult of localgovernment financing. In response to this issue, this article proposes the idea of usingsocial bonds to solve financing difficulties of local governments. Combining with detailed case, this article analysis the origination, operating mechanism and advantage ofSocial Impact Bonds. Finally, proposes some corresponding suggestions for China’sdevelopment of Social Impact Bonds.This article is divided into five parts. Part one is the introduction, including topicselection background, current research, research objectives and method. Part twointroduces the existing local government financing channels and analysis the problem ofgovernment funding, pointing out that the key to solve the problem is broaden thechannel of financing. Part three is an introduction on Social Impact Bonds and itsdevelopment around the world. Then, uses case of U.K. to illustrate the how the SocialImpact Bonds works. Finally conclude a general description of Social Impact Bonds,including capabilities of issuing SIBs, all participants, operating mechanism and theadvantages of Social Impact Bonds. Part four, suggestions on China’s development ofSocial Impact Bond in terms of NGO, public service, social capital and risk prevention.Part five is the conclusion.