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

_IMF Working Papers, December 16, 2013_

## Source details

**Canonical URL:** [Local Government Financing Platforms in China: A Fortune or Misfortune?](https://www.imf.org/en/publications/wp/issues/2016/12/31/local-government-financing-platforms-in-china-a-fortune-or-misfortune-41131)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/local-government-financing-platforms-in-china-a-fortune-or-misfortune-41131/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/local-government-financing-platforms-in-china-a-fortune-or-misfortune-41131/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/local-government-financing-platforms-in-china-a-fortune-or-misfortune-41131/bundle-manifest.json)

## Bibliographic details
- Authors: Miss Yinqiu Lu, Tao Sun
- Published: December 16, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475599671.001

---

### Summary
- China’s rapid credit expansion in 2009–10 brought local government financing platforms (LGFPs) into the spotlight.
- The paper discusses LGFPs’ function, reasons behind their recent expansion, and risks they are posing to:
  - the financial sector,
  - local governments, and
  - the sovereign balance sheet.
- Central argument: 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.
- Proposed ways to avoid misfortune:
  - 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;
  - developing local government bond markets and promoting financial reforms.

### Key findings and risks
- LGFPs expanded rapidly following the 2009–10 credit expansion.
- Risks identified include pressures on:
  - the financial sector,
  - local government fiscal positions, and
  - the sovereign balance sheet.
- The paper emphasizes the conditional nature of LGFPs’ value: beneficial historically, potentially harmful going forward if underlying causes are unaddressed.

### Policy recommendations
- Acknowledge and address revenue and expenditure mismatches at the local government level.
- Establish a comprehensive framework to regulate and supervise local government budgets.
- Ensure the sustainability of financial resources derived from the sale of land use rights.
- Develop local government bond markets.
- Promote financial reforms.

---

## Content in this bundle

- **_wp13243**
  - [_wp13243 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13243.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp13243 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13243.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/local-government-financing-platforms-in-china-a-fortune-or-misfortune-41131_