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

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  • 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

  • Yinqiu Lu & Tao Sun, 2013. "Local Government Financing Platforms in China; A Fortune or Misfortune?," IMF Working Papers 13/243, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/243
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    Cited by:

    1. Xiang Xu & Alice Siqi Han, 2018. "Will China Collapse: A Review, Assessment And Outlook," Economics Working Papers 18104, Hoover Institution, Stanford University.
    2. Sun, Lixin, 2015. "China’s Debt: Structure, Determinants and Sustainability," MPRA Paper 68548, University Library of Munich, Germany, revised Oct 2015.
    3. repec:bla:buecrs:v:68:y:2016:i:s1:p:146-170 is not listed on IDEAS
    4. Yi Huang & Marco Pagano & Ug Panizza, 2016. "Local Crowding Out in China," CSEF Working Papers 450, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 13 Nov 2017.
    5. repec:eee:ecmode:v:67:y:2017:i:c:p:248-260 is not listed on IDEAS
    6. Yi Huang & Marco Pagano & Ugo Panizza, 2016. "Public Debt and Private Firm Funding: Evidence from Chinese Cities," IHEID Working Papers 10-2016, Economics Section, The Graduate Institute of International Studies, revised Aug 2016.
    7. Shalendra D. Sharma, 2014. "Shadow Banking, Chinese Style," Economic Affairs, Wiley Blackwell, vol. 34(3), pages 340-352, October.
    8. Orhan Hilmi Yazar, 2015. "Regulation with Chinese Characteristics: Deciphering Banking Regulation in China," Journal of Current Chinese Affairs - China aktuell, Institute of Asian Studies, GIGA German Institute of Global and Area Studies, Hamburg, vol. 44(2), pages 135-166.
    9. Bonatti, Luigi & Fracasso, Andrea, 2014. "Modeling the Transition Towards Renminbi's Full Convertibility: Implications for China’s Growth," MPRA Paper 54129, University Library of Munich, Germany.
    10. Naoyuki Yoshino & Farhad Taghizadeh-Hesary, 2016. "Causes and Remedies of the Japan's Long-lasting Recession: Lessons for China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 24(2), pages 23-47, March.
    11. Andrea Fracasso, 2015. "Economic Rebalancing and Growth: the Japanese experience and China’s prospects," DEM Discussion Papers 2015/07, Department of Economics and Management.

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