Research On The Transformation Of Local Government Funding Vehicle

The Local Government Funding Vehicles(LGFVs)is a peculiar model in the field of infrastructure construction in our country and has made outstanding contributions to the economic development and macroeconomic stability of our country.However,after the "4 trillion" investment plan in 2008,the scale of local government debt in China rapidly expanded,and high local government debt forced the central government to make policy adjustments.After the introduction of the new regulations on local government's debt in 2015,the traditional business model of LGFVs is unsustainable,and LGFVs have gradually started to transform.In this paper,through the analysis of the financial situation of LGFVs(taking Company A as an example),we study the transformation strategy which is reflected in the change of Company A's financial statements.Found that LGFVs in 2015 began to gradually change from the organizers of the infrastructure construction to assets managers.With the money of excess operating cash flow,as well as long-term debt financing funds,company A gradually invests in long-term assets with higher returns.In this process,its long-term debt structure is adjusted,the reliance on land valuation is reduced,and the long-term loans secured with lands are replaced by long-term bonds.On the whole,LGFVs(taking Company A as an example)are very healthy,with sufficient liquidity,low asset-liability ratio,and has wider space for debt financing,However,it should be noted that LGFVs still have some problems,such as the lack of a stable source of repayment funds,and long-term loans secured by land are still large,repayment burden in the short coming years are heavy.LGFVs should adjust the long-term investment structure,holding some high cash returns assets,continue to gradually replace or repay long-term loans.The transformation of LGFVs is not a single company's transformation,but a systematic change.So the central government of China should have the overall plans,cleaning up the vehicle companies' debts,integrating resources,and gradually reducing the local government's dependence on LGFVs,improving LGFVs' operating efficiency,running LGFVs by market rules.So that LGFVs can make innovation and keep developing,to achieve the preservation and appreciation of state-owned assets.