City Investment Company’s Purchase Of Land,Land Financing And Local Debt Risk

The income from land transfer and the financing of issuing bonds with land guarantee by the city investment platform are important means to alleviate the financial pressure of the government.In 2020,in order to prevent financial risks in the real estate market and control the excessive rise of housing prices,the central bank and the Ministry of Housing and Urban-Rural Development issued a "three red lines" policy to manage the debt structure and financing capacity of housing enterprises from the supply side.In order to reduce the interest-bearing debt ratio,real estate development enterprises significantly reduced the proportion of land acquisition,resulting in a decrease in government extrabudgetary fiscal revenue.This paper holds that in response to the reduction of land purchase of real estate development enterprises after the policy shock,local governments intervene in the land market by letting the city investment platform take land,on the one hand,supplementing the income from land transfer,on the other hand,making the city investment platform expand the scale of bond financing with land assets.However,it is worth studying whether the local financial resources formed by land acquisition by urban investment platform can be effectively transformed into investment to promote local economic development,or whether it just forms the idling of funds.In October,2022,the Ministry of Finance issued the Notice on Strengthening the Management of "Three Public Funds" and Strictly Controlling General Expenditure,which pointed out that some governments had idle land purchase funds,which increased the risk of government debt and confirmed the central government’s concern about this issue.Based on the change of land acquisition ratio of urban investment platforms after the implementation of the "three red lines" policy,this paper studies the influence of the change of land acquisition ratio of urban investment platforms on the issuance,use,capital utilization efficiency and government debt risk of urban investment bonds after the implementation of the policy.Firstly,this paper combs and theoretically analyzes the behavior of local government and urban investment platform in land financing,and the relationship between them.It is believed that local government will urge urban investment platform to take land in order to maintain fiscal revenue after policy shock,and the platform will further make up for government revenue by expanding the scale of bond financing with land assets.In the empirical aspect,this paper selects the quarterly data of 187 prefecture-level cities in China from 2017 to the first quarter of 2022 as samples,and adopts the fixed effect model to test.It is found that after the implementation of the "three red lines" policy,the land transfer income of local governments has increased significantly because of the increase in the proportion of land acquired by urban investment platforms.At the same time,the increase in the proportion of land acquired by the urban investment platform after the implementation of the policy significantly reduced the issuance cost of local urban investment bonds and increased the issuance scale of urban investment bonds.However,the increased capital income did not significantly increase the local investment in fixed assets,and at the same time increased the local government’s debt ratio and increased the local government’s debt risk.The results of heterogeneity test show that in the eastern region,areas with high financial pressure and areas with high dependence on land financing,the increase in the proportion of land taken by urban investment platforms after the implementation of the policy and its impact on the issuance of urban investment bonds and government debt risks are more significant.Finally,a series of robustness tests are carried out to ensure that the conclusions are reliable.The research results of this paper can provide some enlightenment and reference suggestions for local governments to prevent and resolve debt risks,improve the government financing system and promote the rational and healthy development of the bond market:firstly,we should realize the linkage effect of urban investment platform participating in the land market and bond financing behavior,and simultaneously regulate the land market and manage urban investment bonds;Secondly,we should enrich the financing channels of the government and reduce the implicit guarantee and financial subsidy of the government to the city investment platform;At the same time,it is necessary to promote the market-oriented transformation of the city investment platform and enhance the profitability of the platform;Finally,we should strengthen the disclosure system of government debt information and regulate and supervise the use of debt funds.