The Debt Risk Prevention Of China’s Local Government Financing Platform

In order to rationalize the relationship of financial distribution between the central and local governments, the State Council decided that we implemented the tax system reform since January 1, 1994, which turned over most of the property rights to the central, and most of the administrative powers to the local, causing the dislocation of central and local financial authority and powers. After the outbreak of the global financial crisis in 2008, our government launched a fiscal stimulus to ease the negative impact on our economy. However, most of the fund needed to be provided by the local government themselves. Meanwhile, China’s budget law clearly stipulates that local governments may not issue local government bonds, excluding special provisions. In this context, in order to ease the pressure on local fiscal expenditure, local governments must innovate financing mode and expand the financing channels, therefore the investment and financing platforms of local government have emerged. In 2010,the central government issued the state made 19 document specification Platform loan financing:no new financing pattern of the recent emergence of new, to contain the platform too fast development, but local officials for the GDP oriented achievement needs and no fundamental change, besides local government financing platform for local infrastructure construction has made indelible contribution. At present in our country the local financial authority and powers of special seriously inconsistent situation, the local government financing platform has its unique importance, but the huge amounts of money loaning risk cannot be neglected.The purpose of this article is to study the debt risk problem of China’s local government financing platform, analyzes its present situation, causes, and put forward policy recommendations, the western government debt and risk management theory is studied in this paper. In this paper, on the basis of the theory of predecessors’ research, closely around the local financing platform risk problem, debt risk as the main object, risk management and prevention research platform, have certain relevance.Built on the basis of theoretical review and analysis, this paper has taken "Town F"(abbr.F) in Chongqing’s local government financing platform debt data analysis, empirical analysis of the Chongqing F regional government financing platform debt scale, debt quantitative analysis, debt risk measure, through analysis and comparison of statistics,we find the debt dependency are close to the critical threshold. Needless to say, the real estate market will inevitably reach its peak and facing downturn pressure; and once that happens not only we see price fall in real estate market, we will be likely to see governmental debt problems too.Based on the empirical and theoretical reviews made in the initial part of this paper, it was focused on how to improve the government financing platform debt structure, how to manage the scale and the cost of it. It was furthermore looking into ways of building a cooperative framework between large financial institutions and region F government to resolve the short term debt risks. At a higher level, the paper also aims to providing some insight suggestions on potential ways of improving the current fiscal system, enhancing the management and enforcement of state budgets, helping moving the tax allocation system towards a fairer mechanisms, encourage the involvement of private funding into the construction of the social infrastructure programmes, such as via public private initiatives.