Research Of Local Government Financing Platform Company’s Debt Risk In Non-profit Project

Local government financing platform raising funds for local economic development forms an important medium of local government financing. Local government financing platform company as a special corporate entity, is a vital part of local government platform. In recent years, with the rise of debt burden, local government platform companies are facing increasing debt risk. Since2010,local government platform companies have been continuously scrutinize and regulated by central government. However, the size of the debt has not been reduced significantly after four year. It is because of that the debt of local government platform company will need a long period of time to be absorbed by the market. On the other hand, it also shows that the situation where local governments still heavily rely on platform company has not been fundamentally resolved. At the same time, in2014, the first major amendment of the budget law is proceeding to the fourth trial, which may prohibit all levels of government (including central government) securing debt for any entities or individuals. The survival of local government platform company will be greatly challenged, and it may also present opportunities for their future development.Currently, high level of negative equity and lack of profitability are common issues among local government platform companies. One of the reasons is that it involved too many non-profit projects. However, due to their positive externalities, monopolies and large demand for capitals in future, for a long period of time, non-profit projects will remain to be a major investment area for local government platform company as part of its function, there have been comprehensive research carried out on debt risk of local government platform, but most are on a macroscopic level where focus are on overall debt risk analysis. On the basis of that local government platform companies are independent legal entities, this paper will study the debt risk of non-profit projects to local government platform companies. First, it produces a qualitative analysis on nine risks and their causes from the area of debt financing, operation, repayment respectively; Secondly, the level of debt risk is determined by a quantitative methods where financial reports are assessed against its long-term solvency.Meanwhile,it is more operability and intuitive to take XX Development and Investment Co.,Ltd.as an example. Finally, recommendations are made to control the debt risk involving non-profit projects. The paper analyses debt risk from identification, assessment and control point of view and it will be beneficial to local government platform for further understanding the status of their debt management. It also provides new prospective to their future development within current policy.