Research On The Debt Risk Of The Investment And Financing Platform

With the specific planning of the “12th Five-Year Plan” and the “13th Five-Year Plan”to accelerate the process of urbanization in China and maintain sustainable economic growth,local government needs to invest much capital in fundamental infrastructure construction.In order to alleviate the local financial pressure,local government raises funds by establishing investment and financing platforms.Therefore,the investment and financing platforms established by local government exhibited exponentially growth,and the scale of their accumulated debt has also increased the local government's expenditure burden.It is undeniable that the investment and financing platforms played an important role in promoting urbanization process and withstanding economic crisis owing to facilitating construction of municipal fundamental infrastructure and encouraging economic growth.Nevertheless,the constantly growing of debts have trigged series problems such as operation and management irregularities of the platforms,insufficient financing channels,and relatively low profitability.The accumulation of debt risks also implies risks in the fields of finance,economy,and society welfare.After China State Council issued Document [2014] No.43,a series of documents divesting the government financing functions of local government investment and financing platforms,strictly controlling new debts,and regulating local government financing activities have been issued to prevent and resolve major financial risks.“How to alleviate and guard against the debt risks” becomes the most pressing and challenging question due to the enormous financial risk resulting from the accumulation of debts.The purpose of this study is to locate the causing of the debt risk,suggest feasible strategy to guard against the debt risk,and offer references for other local government investment and financing platforms in the meantime through an example research of the HG Construction and Investment Company.In the case analysis process,through reviewing and collecting the internal business data,debt management data and operation management documents of HG Construction Investment Company,this study firstly combed its financial status with its financial report data and then sorted its debt size,structure classification and debt risk.The performance analysis is qualitatively analyzed.Finally,based on the relevant financial indicators,the debt risk is analyzed.The conclusions of the HG Construction Investment Company debt risk research are as follows: First,the debt ratio is abnormally high due to the excessive debt management;second,in terms of their debt structure,the local government debt is predominated,which can cause them more susceptible to governmental credit default;third,the poor liquidity of assets and the lack of profitability are also inclined;the fourth is the heavy expected expenditure burden and strong social relevance;the fifth is the unreasonable debt structure and the concentrated payment period.The following conclusions can be drawn from the analysis of the investment management and financial situation of HG Construction and Investment Company:(1)The current tightening of macro policies results in the financing channels shutting off,the pressure of capital repayment to financial institution,and the burden of expected expense and further increasing debt risk.(2)high asset-liability ratio,deprivation of profitable income,and decreased solvency are indicative of the financial state deterioration of HG Construction and Investment Company.The improper capital construction and the investment toward inventory construction projects as main asset rendered low asset liquidity.(3)The outstanding financial risk of HG Construction and Investment Company is because of ambiguity of government and enterprise functionality,incompetent management practice,unreasonable arrangement of the funds,poor management of stockdebt and according alert mechanism,and lacking effective support from local government.(4)HG Construction and Investment Company should actively strive for financial funds to replenish its capital and subsidy funds to reduce debt ratios and alleviate financial pressure;cooperate with local government to reinforce debt control and establish robust alert mechanism;transform operational and developing models,tap development potential and expand profit-oriented projects;actively utilize private capital,activate finance stimulus,and devote to development transformation.