Local Government Financing Platform Debt Behavior and Impact Analysis
|Keywords||local government central government commercial banks financeplatform credit accelerator|
In recent years, the financial crisis caused by the U.S. subprime mortgage crisis has had a profound impact on the world economy. In order to rescue the financial crisis, many countries take advantage of active fiscal policy and quantitative easing monetary policy to stimulate economic growth. However, this economic rescue mode are not only failed to revive the economy, but causes some countries economy deeper into recession. The European sovereign debt crisis is a good example. China’s response to the financial crisis is no different with other countries, which rely on a large number of credit funds to support the investment plan in order to stimulate the economic growth rate. But China quickly got rid of the financial crisis and maintain higher economic growth rate known as the "miracle". In the meantime both the Chinese government’s budget deficit and the size of the debt to GDP ratio are lower than other countries. While maintaining higher rapid economic growth, there have been a variety of social problems in China. This phenomenon was once referred to as "a crossroads" in China. The miracle of China’s rapid growth has also led to the popular discussion of the academic community about the existence of the "China model". Are all these phenomena intrinsically linked? We have keen interest in all these seemingly complex economic reality. Accumulated through the collection of economic material and economic realities thinking, we focus on the financing platforms.After the2008financial crisis, the Chinese government introduced a4trillion economic program, of which1.18trillion provided by the central government, the central government on behalf of local governments to issue200billion in bonds, the rest is provided by the local government matching. Due to the constraints of their own financial situation, the local government can not provide so many matching funds in that time. In early2009, the PBOC and CBRC jointly issued "on further strengthening the credit structure adjustment to promote stable and rapid economic development of the guidance", which states that:"support qualified local government set up investment and financing platform, issue corporate bonds, medium-term notes and other financing instruments, to broaden the central government investment projects matching funds financing channels." Under the guidance of this document, Financing platforms have sprung up in a quickly way. Financing platform generation seemingly by chance, in fact, has its inevitability. In the process of economic transition in China, financing platform and other factors to be improved are entangled symbiosis. So research financing platform should not only confined to the financing platform itself, but should be based on the reality of China’s economic development, to conduct a comprehensive analysis. The financing platform closely related to the urbanization process in China, so to some extent we can say that the financing platform opens up unique Chinese urban construction mode. In this point, we hope that we can know the context of China’s economic development which was evident by the knowledge the whole picture. And those understandings play a valuable role in understanding of the "China model"or the unique Chinese urban construction mode.In this regard, we mainly do the following work:The first chapter is an introduction, which introduces the background, main content, significance, research ideas, research methods, possible innovation and weaknesses, and focus on defining related concepts in the articles.The second chapter is the literature review and theoretical basis. Literature review combs literatures about the research about urbanization aspects of local government debt, the research about local government financing, the research about commercial banks and the research about financial accelerator literature. The theoretical basis mainly introduces the public choice theory, the soft budget constraint theory, the theory of fiscal decentralization and principal-agent theory. In the theory of fiscal decentralization, after analyzing the evolution of fiscal decentralization from the traditional theory of fiscal decentralization to the market-preserving theory of fiscal decentralization, this article analyses the evolution of the Chinese fiscal decentralization logic.The third chapter analyses local government financing platform debit behavior. This section draws on the "iron triangle" of public choice theory, the realities of China’s "iron triangle" means microscopic principal, central government and local governments to analyze the behavior of local government borrowing. On this basis, we point out that "iron triangle" of debt financing platform are central government, local government and commercial banks. Based on the realities of China from the central government to local governments’ constraint mechanism and under the dual impulse of commercial banks and local governments we analyze the financing platform debt behavior.The fourth chapter is longitudinal analyses, which analyze the behavior of local government borrowing from the changes in the financial relationship between central and local changes. The changes mainly include the financial game and the central and local principal-agent. In the financial game we first analyze the local government behavior changes under China’s financial system evolution, the behavior from the "business enterprise" behavior under the tax-contracting system to "city management" behavior under the tax-sharing system. After the establishment of a theoretical model to analyze the local government debit behavior under the central and local governments financial game, we verify the theoretical analysis results based on the operation process of the financing platform in the reality. The second part of this chapter analyzes local government debt behavior in the central and local principal-agent framework.The fifth chapter is horizontal analysis, which analyzes the credit accelerator effect of local government financing platform. This part is in the guidance of financial accelerator ideas, and put the land factors into the.analysis, based on the reality of China to establish credit financing platform accelerator model under local governments and commercial banks double impulse. Through local government utility maximization analysis we get propositions of that local government have investment impulse, the land acquisition impulses and debt impulsive. Through commercial banks behavior analysis based on the policy burden analysis we get propositions of that the commercial banks have lending impulse proposition. Under the double impulse of local governments and commercial banks, credit financing platform has accelerator effect. At the end of this part we explore the financing platform credit accelerator effect in theory and reality. The sixth chapter is local government financing platform debt risks analysis. This chapter analyzes the risk of financing platform:the formation of the debt risk, insolvency risk, risk transfer and risk control. Risk of formation is divided into three aspects:the financing risks formed by heavily dependent on land factors, financial risks formed by over-reliance on bank credit, the legal risk formed by lack of local government guarantees.In the debt risk analysis, draw on the debt threshold standards prescribed by the Maastricht Treaty and local government debt service ratio as a measure of the local government solvency. On the basis of local government revenue and land revenue estimates, we calculated local government debt risk. The risk transfer of local government financing platform is the risk passed on financing platform upgrade. Local government financing platform to pass the upgrade risk mainly refers to local government debt passed on from the bottom up, from the local to the central pass a financial risk and forced central bank to issue currency, may also be upgraded from the point to the surface, that is, by the local government debt upgrade into macroeconomic risks. In accordance with the financial accelerator theory, small economic impact may have a significant impact on the macroeconomy; all the risks if not controlled in time, may lead to financial crisis and even economic crises. At end of this part, combined the credit accelerator theory, we analyze the controllability of the financing platform risk.The seventh chapter is conclusions and policy recommendations. The main conclusions of this paper is that under the double impulse of local governments and commercial banks financing platform has a credit accelerator effect, and the credit accelerator effect can cause a risk of shock. In order to avoid risks, this article finally makes related policy recommendations as follows:standardize government behavior, standardize the behavior of commercial banks, deepen the reform of institutional mechanisms and improve the relevant policies and regulations, to rectify local government financing platform, several aspects relevant policy recommendations to consider the issuance of municipal bonds.