The Research Of Local Government Funding Vehicle

After the cleaning-up of Local government funding vehicle in2010, theprinciple of collecting without loaning and controlling the existing applied bythe CBRC blocked the financing channels from the local government to loaningfrom the banks, while the trust fund and bonds market just opened freely anddeveloped prosperously, which illustrated that the local government turned toother financing channels to get the money than loaning, which leads thosechannels comparably concealed and difficult to census. Moreover, in recentyears, the debt problems of the local government has showed a trend ofbecoming more and more serious, China’s state council commissioned theNational Audit Office to start a new round of nationwide government debtauditing from July29th to Sep30th in2013, with the audit scope covering fivegovernments levels from central government to rural towns, in order toinvestigating resources, reflecting problems, revealing risks and makingsuggestions. To resolve the local government debt problem in short term is impossible and impractical while most of these debts are from local governmentfunding vehicle. How to regulate the operation of local government fundingvehicle and control the risks is an important work for the current, the directionof its future development is also worth thinking about.This paper, taking Shanghai J industrial zone as an example, using thetheory of public goods and the theory of fiscal decentralization, analyzes thebackground, the role of China’s local government funding vehicle and the newtrends of the current financing, explains the problems and risks of the localgovernment funding vehicle, attempts to make some suggestions to regulate thedevelopment of the vehicles with reference of foreign government’s financingmode to seek for the solutions to the over-indebted problem of localgovernments and forecast the future development of local government fundingvehicle with the analysis of transformation of local government functions. Thispaper is divided into five parts:The first part is introduction. This part elaborates the background andsignificance of this dissertation, defines the relative concepts of localgovernment funding vehicle, summarizes and reviews the domestic andinternational literatures and chooses the methods of the research.The second part is the theoretical basis. This part outlinesPublic Economics theory and Fiscal Decentralization theory.The third part firstly analyzes the background of local government fundingvehicles’ generation, development in three major causes of reform, system andreality and its function; secondly explains the vehicles’ financing scopes’ changing, financing modes’changing; finally analyzes the existed problems andreveals the risks.The forth part introduces the financing modes of the foreign localgovernments. This part introduces the municipal debt of America, the publicprivate partnership of UK, the franchising system of France and the financialleasing mode of Germany, and summarizes the revelations from the majormodes of foreign local governments to China’s building its own mode.The fifth part proposes some suggestions and prospects about the orderlydevelopment of local government funding vehicles and direction of futuredevelopment. At the current stage, since local government funding vehicles stillplay an important role of local economic development, standardizing should bethe principle of the management of local government funding vehicles, so thispart proposes some suggestions for standardizing from the viewpoints as orderlydevelopment of vehicle itself, broaden the financing channels of localgovernment, enhance local government’s strength and improve the mechanismof the risk management. In the future along with the change of governmentfunction, local government’s functions will be more clear, financing ways willbe more diversification and standardization, so the funding function of localgovernment funding vehicles will be gradually weakened and turned to publiccompany is the development direction.