Research On Transformation And Development Of Local Government Debt Platform In China

In recent years, China has actively implemented prudent fiscal policy and loosed monetary policy, so credit scale has grown rapidly. These policies prompts local governments to set up debt platforms to generate funds for infrastructure investment, and to easing the domestic impact of the international financial crisis. That also help to stabilize China’s economy. Favorable macroeconomic environment and policies propel local government debt platform to become the most dazzling, the most active investment and financing stars. The number of local government debt platform were rising quickly, even reach down to the township levels. The scale has grown rapidly and diversified, resulting in a large scale local government debt. However, the local government debt platform hematopoietic ability and subordinated loans ability are generally causing concerns.Their debt structure and financial capital maturity have mismatch problems.Once their capital liquidity fracture occurs, it will inevitably lead to exposure of local government debt.In addition, the disguised financing, security breaches and non-standard use of funds are widespread in financing activities of local government debt platform. Moreover there has been a debt default which bring enormous pressure to the financial system and a threat to the safety of the financial system. It has aroused widespread concern from the central government, market participants, and academia.In this paper, I examine local government debt platform. I find and analyze some common problems in the development process of local government debt platform. From the macro and micro perspective, I analyze the risks of local government debt platform may trigger, and meticulously investigate the causes of risk. Local government debt platform need to adapt to fast-changing economic environment, speedy growth, and play a facilitating role to develop the economy. At the same time, state-owned enterprise are urgently needed to reform themselves. However, the restructuring and development are not easy. They should handle huge amount of debt, and start to cut the inventory of products and to further standardize the increment. This is the premise of transition of local government debt platform. In summary, this paper presents a set of recommendations for restructuring and development on transition of local government debt platform. Including overall objectives and positioning of local government debt platform, restructuring and development of the principle, the path and optional modes. Eventually, in order to ensure the smooth implementation of local government debt platform, I also proposed a series of safeguards and risk mitigation recommendations.