| Market congenital defect makes the local governments bear the important task of the construction of the public goods, while in recent years,the private capital more and more widely gets involved in the infrastructure construction field, but the decision-makers and the dominant position of the government’s main supply still has not changed, those with non-competitive and non-profit pure public goods or quasi-public goods or to build by the government, therefore, the government still bears the responsibility to protect public facilities construction funds effective supply. Since the implementation of the tax reform in 1994,most of the tax revenue are transferred to the central government. In addition,government duties haven’t been divided scientifically between the central and local governments, resulting in a reduction in local revenue. The mismatching between finance and duty rights makes local governments in the public products short on money. Before the new "Budget Law" revised, local government borrowing and issuing bonds is prohibited, Local governments may obtain capital channel is very narrow, the finance often is in a state of "living beyond its means", which restricted the local economic development and urbanization process. To make up for the funding gap,government sets up the government finance company to market-oriented financing. Since its establishment, Local government financing company use widely the financial and capital market to raise funds for local economic development, alleviating the financial pressure on the local, promoting the urbanization construction, improving the living standards of local residents, and playing an important role for China’s success in response to the economic crisis.In the same time, Local government financing company avoid the conflicts with the mandatory provisions of the state, implement financing needs a balance with the limits of the law.However, since 2008, during local government financing companies expend the scale, the hidden problems are gradually exposed, such as invested false, unreasonable structure, illegal guarantee, default risk, etc. The problems not only affect the health of the finance company, and induce financial risk, even threaten the development of the economy,the finance company management are imperative.2014 the State Council issued "on the strengthening of local government debt management advice", it pointed out the financing companies as the function of government financing had to been divested. In new budget law, local governments can finance by issuing bonds. Local government debt financing is more and more standardization and rationalization.Therefore the opinions about the local government financing companies look bleak, and even negate the meaning of existence directly, some people think finance companies will be canceled in the near future.However, from the current national policies and the reality, we can see financing companies still have its value and development space, it is difficult to disappear in a short period of time. First of all, most of the local governments in China have no experience of issuing bonds, it’s still difficult to solve the funding problem by issuing bonds. And from western countries, it’s still an effective way with the help intermediate organizations and specialized agencies.Thus, with a long-term cooperation relationship with the local government, financing companies still have a chance to become a powerful assistant of local governments to issue bonds. In addition, PPP will become the main mode of financing local infrastructure projects, the government still needs to cooperate with market economies. So, Local government financing companies still can continue to play their financing function in a number of ways. On the one hand we want to put aside the pessimistic psychology, on the other hand,we need to regulate the problems of financing companies and accelerate the pace of transformation, so the companies can provide better service for local economic construction. |
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