Local Government Financing Platforms in China: A Fortune or Misfortune?

December 16, 2013

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Yinqiu Lu, and Tao Sun. Local Government Financing Platforms in China: A Fortune or Misfortune?, (USA: International Monetary Fund, 2013) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

China’s rapid credit expansion in 2009–10 brought local government financing platforms (LGFPs) into the spotlight. This paper discusses their function, reasons behind their recent expansion, and risks they are posing to the financial sector, local governments, and sovereign balance sheet. This paper argues that LGFPs were a fortune for China in the past, but would turn out to be a misfortune if the causes of the rapid expansion of LGFPs are not addressed promptly. In this context, the paper proposes ways to avoid misfortune by: acknowledging and addressing the revenue and expenditure mismatches at the local government level; establishing a comprehensive framework to regulate and supervise local government budgets; ensuring the sustainability of the financial resources obtained from the sale of land use rights; and developing local government bond markets and promoting financial reforms.

Subject: Banking, Expenditure, Financial institutions, Loans, Monetary expansion, Monetary policy, Public debt, Sovereign bonds

Keywords: Capital markets, Credit, Fiscal policy, Global, Lending activity, LGFP borrowing, LGFP debt, LGFP loan, LGFPs loan, LGFPs secure loan, Loans, Local government, Monetary expansion, Need support, Rapid growth result, Sovereign bonds, Sovereign risk, Transfer-adjusted revenue ratio, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/243
Stock No:

WPIEA2013243
ISBN:

9781475599671
ISSN:

1018-5941

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