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Local Government Financing Platforms in China: A Fortune or Misfortune?
Author:
Miss Yinqiu Lu
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Tao Sun null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 243
Language:
English
Publication Date:
16 Dec 2013
DOI:
https://doi.org/10.5089/9781475599671.001
ISBN:
9781475599671
ISSN:
1018-5941
Pages:
30
Keywords:
WP; LGFP debt; transfer-adjusted revenue ratio; LGFP loan; LGFPs secure loan; lending activity; Credit; local government; sovereign risk; fiscal policy; capital markets; LGFP borrowing; LGFPs loan; need support; rapid growth result; Loans; Sovereign bonds; Monetary expansion; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund