| The debt risk brought by local governmental investing and financing platforms concerns a lot with China’s administrative system and financial management system. It has to be admitted that local governmental investing and financing platforms have exerted positive effects to the prosperity of economy during these years; Meanwhile, the scale and velocity of the debt have expanded with endogenous power since 2008 thus making it a main source of financial risk. Research on this issue helps to reveal internal logical relations of the huge amount of accumulated debt and promote the public finance reform to a further degree, which plays a vital role to prevent and reconcile underlying debt risk.The analysis shows that five factors including China’s administrative system, financial management system, land financing, willingness and capability of local governments and commercial banks’credit risk constituted the causes of the debt risk. From an empirical perspective, this paper arrives at the conclusion that the debt status is still within what China can afford but with tremendous underlying financial risk by estimating three different warning lines. Comprehensive and strict debt controlling system must be established to suppress the scale and velocity of local governments’ debt. Over-reliance and overuse of land financing was the main capital source for the former urbanization but unsustainable. It becomes urgent to create a standardized and transparent financial mechanism. When confronted with giant fiscal expenditure for the new urbanization and great pressure of repayment, PPP is proposed with central and local governments’ great emphasis.Benefit sharing, partnership and risk co-shouldering are the three characteristics of PPP. In order to execute PPP to a satisfactory degree, local governments should pour resources to choose competitive PPP programs, improve PPP regulations as well as related laws and create a harmonious atmosphere for the fulfilled operation of PPP. |
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