Risk Prevention Of The Local Government Investment And Financing Platform

It is highly theoretically and practically significant to research the risk precaution andcoping of local governments’ financing platforms. After the proposal of the “4TrillionEconomy Stimulating Plan”, the local governments’ financing platforms entered a phase offast expansion and development, and as an important financing tool of the economicconstruction of local governments, they played an important role in enhancing the financialresources of local governments, promoting city management and the development of socialundertakings, by propelling urbanization through large-scale financing, and rapidly startingdomestic demand. However, while stimulating the rapid recovery of China’s economy,there exist many potential risks of imbalance, inharmony and unsustainability, and this hasbrought great risking pressure to the local fiscal and financial system and macroeconomicoperation, and is greatly disputed.Through combing both the domestic and foreign documents, it is found that foreignresearches mainly focus on traditional risks, financial risks and efficiency of publicproducts, while domestic researches emphasize macro policies and precaution strategiesagainst risks, evaluating risks by Quantitative Analytic Hierarchy Process in an empiricalapproach. This thesis analyses the reasons of the inflation of the development of theplatforms, and the accumulation of risks, searches for the mechanism of the hiding of risks,transferring paths and solving methods, and targetedly provides precautious and controllingmeasures through the empirical analysis of the financing platform of City T.This thesis researches the current developing situation of local governments’financing platforms, and combs the mains points of the operation of local governments’financing platforms, taking Tianjin, Shanghai and Chongqing as samples. On this basis,firstly, it emphatically analyses the mechanism of the occurrence of the risks of the financing platforms, pointing out that: the framework of tax distribution system is the rootof systematical risks, special government background and industrial characters causepolicy risks, and as the subject of market economy the platforms have to bear the marketrisks and the internal business risks. Secondly, upon the transferring paths of risks, therisks of financial platforms is apt to cause the fiscal risks of the local governments, andproduce the risks of financial system, and furthermore cause the risks of macroeconomicoperation, even bring about a series of social problems. Lastly, in the correspondence, tobuild up the risk precaution mechanism, beginning with the precaution against market risks,the precaution against policy risks, and the precaution against the internal business risks,the government should optimize the top-level design, better the relevant laws andregulations, and regulate the financing activities of local governments’ financing platforms.As the leading figure in the second-tier cities, City T’s financing platform developsfast, has a rapidly expanding scale, leads to obvious effects as government tools. And it’sspeeding up the marketization and regulationization transfer of the operation, and also hasthe attribute of both the financing platform and the modernized investment company, thushas the stronger representativeness. Concerning the positioning, the several investmentand financing platform companies bear the key construction projects of the whole city,lead the development of the key areas, and also have the functions of guiding the industryupgrading. They have become the indispensable strategetic tool of the local development.Their projects cover public welfare, semi-public welfare, and completely competitiveprojects relying of government resources. Through the research of the operation of thecompanies, it is found that the risks mainly exist in the following4aspects: thedependence on the land revenue, the uncertainty of their own projects, the huge pressureof cash flow, and the congenital flaws of the innormativeness and inflexibility of thesystem and mechanism. Concerning the risk of paying off the debts, the asset-liabilityratios are on the high side, the asset structure is not completely reasonable, and the profitlacks of stable support, the financing channels are narrow, the repayment peak is in thecoming several years, thus the payment pressure is pretty high. According to this situation,it is suggested that City T take the following measures and tactics to strengthen theprecaution and coping to the risks: establishing the developing strategy of stagger competition and bettering the current “5+N” framework；accelerating the resourcesintegration；overall strategy guide; paying attention to balancing and compensation;breeding characteristic principal industries and realizing the marketizaiton of thecompany operation; realizing the diversification of financing channels.