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

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  • Miss Yinqiu Lu
  • Tao Sun

Abstract

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.

Suggested Citation

  • Miss Yinqiu Lu & Tao Sun, 2013. "Local Government Financing Platforms in China: A Fortune or Misfortune?," IMF Working Papers 2013/243, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2013/243
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    References listed on IDEAS

    as
    1. International Monetary Fund, 2011. "People's Republic of China: Financial System Stability Assessment," IMF Staff Country Reports 2011/321, International Monetary Fund.
    2. Alexander Plekhanov & Raju Singh, 2006. "How Should Subnational Government Borrowing Be Regulated?Some Cross-Country Empirical Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 1-4.
    3. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, vol. 91(3), pages 709-723, June.
    4. Liu, Lili & Waibel, Michael, 2008. "Subnational insolvency : cross-country experiences and lessons," Policy Research Working Paper Series 4496, The World Bank.
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