A Research On The Finance Mode Of Local Government Under The New General Circumstance

In recent years, Chinese economy is increasing in a lower speed than what it did previously. With the advantage of environment, resource and population fading away, Chinese economy is facing a brand new situation. Under the new circumstance, a couple of problems have turned up. While ecological environment being destroyed, industrial structure is facing transformation with aged tendency of population becoming obvious in the same time. In addition, due to the excess of relevant industries about real estate and lacking of modernisation of agriculture, Chinese economy is in rush to look for a brand new growth point. The local government has experienced the change from the finance mode of floating a lot of loans to pull the economic increase to the finance mode of reasonable financing.Since 1994, from the innovation about the system of tax distribution, the conflict about the mismatching of the property ownership and the authority of office in local governments has appeared gradually. Because China has not finished urbanization, local governments still need financing from the society in order to reduce the financial stress. Local Government Funding Vehicle(LGFV) has become one of key financing modes for a long time. However, the document called ‘A proposal about strengthening the management of local government debts’(2014) weakened the function of LGFV. Consequently, the traditional financing mode which depends on LGFV has become history.In 2015, the new ‘budget law’ which allows local governments to issue bonds, has brought a new chance for financing modes. The experience from developed countries such as the United States and Japan about local governments bonds is very much worth used for reference and popularized by Chinese governments. The public-private partnership mode from developed countries is also our crucial method to reduce the debt of government and bring in nongovernmental capital.The main problem of the traditional government financing mode is about local governments overusing land finance and LGFV to achieve economic growth which causes a large amount of debts. During the period of industrial structure facing transformation, local governments should change financing modes initiatively in order to meet the need of economic development. In the meantime, the concept of ‘Reinforce the innovation about the structure of supply’ which was introduced by Central Finance and Economy Leading Team Office in 2015, should be reflected by local governments. While economy is transforming, the function of local governments should make changes too. Local governments should pay attention to political function as well as social service function, increase fiscal transparency and ensure the effect of local government debt. In the meantime, local governments should strengthen market supervision and guide healthy competition to promote market economy development.After considering problems of financing modes, this article aims to introduce reasonable financing modes which is suitable for national conditions and the new general circumstance based of experience from developed countries, in order to find a feasible way to popularize local government bonds effectively and promote public-private partnership positively.