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

Author/Editor:

Yinqiu Lu ; Tao Sun

Publication Date:

December 16, 2013

Electronic Access:

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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.

Series:

Working Paper No. 2013/243

Subject:

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

English

Publication Date:

December 16, 2013

ISBN/ISSN:

9781475599671/1018-5941

Stock No:

WPIEA2013243

Pages:

30

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