Front Matter Page
European Department and Monetary and Capital Markets Department
Contents
Abstract
I. Introduction
II. The Function of LGFPs and Their Relationship with Local Governments
III. The Rapid Development of LGFPs
IV. Risks and Vulnerabilities
A. Local Government
B. Banks
C. Sovereign Risk
V. Policy Suggestions
A. Addressing the Fiscal Revenue and Expenditure Mismatches
B. Establishing a Comprehensive Framework to Regulate and Supervise Local Government Budget and Financing
C. Ensuring the Sustainability of Land Capitalization Process
D. Developing Local Government Bonds into Safe Assets
VI. Conclusion
A. Market-based Discipline
B. Cooperative Arrangement
C. Rule-based Controls
D. Administrative Approach
References
Tables
1. Chinese Banks’ Exposures to LGFPs and Potential Incremental Gross NPL Ratios
2. Sovereign Balance Sheet of China
3. Revenue Categories: Property Taxes
Figures
1. Typical Structure of an LGFP
2. Local Government Revenue and Expenditure
3. Fiscal Gap at Province Level
4. Shares of Local Government Revenue/Expenditure in General Government Revenue/Expenditure
5. Land Sales Revenue as a Share of Local Government Revenue
6. Investment to GDP Ratio
7. Transfer-adjusted Expenditure and Revenue Gap by Province
8. Share of Construction and Real Estate in GDP
9. Due Date of Local Government Debt
10. LGFP Loans/Transfer-adjusted Revenue Ratio
11. Loan Composition in the Banking System
12. A Comparison of Deficits to GDP Ratios between Chinese Provinces and Several High Fiscal Deficit Countries
13. Composition of Urban and Rural Housing and Construction Land
14. Reliance on Land Sale by Region
15. Expected Decline in Available Land and Land Sales Revenue