Study On The Financial Risk Of Local Government A Financing Platform Company

Since Chinese government carried out the reform of tax System in 1994, financial authority and power of local governments did not match seriously, leading to the gap of local governments’ revenue and expenditure being larger and larger. As a result, local governments had to seek new financing way to finance the infrastructure construction and public service,which gave rise to local government financing platforms.When the financial crisis crushed at the end of 2008, the State Council issued a 4 trillions economic stimulus plan, supporting the conditional and capable government to set up local financing platforms, then local government platforms emerged in large numbers. It can not be denied that local government platforms played appositive role in promoting the national economic recovery and local economical development.The financing platform raised a large amounts of capital for the urban infrastructure construction,and eased the financial pressure in local governments. It played a positive role in accelerating the urbanization construction, narrowing the gap of urban and rural areas etc. However, because of lots of problems such as the over whelming momentum, the rapid expansion debt and the irregular development etc, the excessive local government financing platforms did not only bring a great deal of financial risk for itself, but also brought a lot of worries to healthy development of the economy in China. Therefore, it is very important to study the financial risk management of local government financing platforms. The Nation began to gradually strength financing and credit management of the local financing platforms in 2010. In 2014, the State Council issued a document for stripping government financing functions of local government financing platforms,then local government financing platforms will turn to market transformation. In order to ensure the smooth transformation of local government financing platforms, financial risk prevention of the local government financing platforms is still the most important.On the basis of summarizing related research about the domestic and foreign local government financing platforms and financial risk, the paper combines with related theoryof financial risk and the concepts, types, operation analysis of local government financing platforms, putting forward four kinds of financial risk of local government financing platforms,then carries on the concrete analysis of the financial risk about A Financing Platform Company.On the basis of relevant theoretical research, this paper combines with the industry status and A Financing Platform Company own situation, and constructs the index system of financial risk from four aspects: financing risk, investment risk, capital recovery risk, cash flow risk, Using financial statement analysis and Z-score model to judge the size of A Financing Platform Company’s financial risk.Analysis results shows that there is a certain risk in the financing, investment, capital recovery, cash flow in A Financing Platform Company. Too high Company debt, the high rate of assets and liabilities and higher financing risk increases the risk of financing and affects the company’s financing business. Because of company’s commitment to more local public welfare projects, profitability is weak and lack of ability of sustainable development. The liquidity of assets is poor and the fund recovery ability is weak. Because of the serious shortage of cash flow,it is difficult to effectively cover the debt. Z-score comprehensive analysis result also shows that A Financing Platform Company is in the overall financial risk. Finally combined with financial risk analysis results of A Financing Platform Company, this paper puts forward the specific measures for the financial risk of A Financing Platform Company, and the series of preventive measures for other local government financing platforms also has the value of application.