State Council Halted Commitments Committed By Local Governments In Violation Of Security

Core tip: in June 10th, the State Council issued a circular requiring local governments to ban acts of illegal guarantee undertaking, and not to guarantee the financing behavior of financing platform companies in any direct or indirect form, such as fiscal revenue and state assets of administrative institutions.

Twenty-first Century economic report 13 June, according to the Chinese government website today, the State Council issued the State Council's notice on strengthening the management of local government financing platform companies in June 10th.

The notice required that the local government's commitment to breach of guarantee should be resolutely stopped.

Local governments at all levels must not guarantee the financing activities of financing platform companies by means of state-owned assets such as financial revenue or administrative units, or any other direct or indirect forms.

The local government financing platform company refers to the economic entity established by the local government and its departments and agencies through the financial appropriation or the injection of assets such as land and equity, undertaking the financing function of the government investment project, and having the independent legal person qualification.

Since China launched the "4 trillion" investment plan in 2008, local governments have been raising funds through local government financing platform to invest in local infrastructure construction and other fields.

According to the CBRC statistics, by the end of 2009, the balance of local government financing platform loans was 7 trillion and 380 billion yuan, an increase of 70.4% over the same period last year, accounting for 20.4% of the general loan balance.

In the first quarter of 2010, 40% of new bank loans went to the local government financing platform, with a scale of about 1 trillion and 350 billion yuan.

In the notice, the State Council pointed out that in recent years, local government financing platform companies have raised funds for local economic and social development through debt financing, and have played an active role in strengthening infrastructure construction and coping with the impact of the international financial crisis.

But at the same time, there have also been some problems that need urgent attention. The main reason is that the scale of debt financing of the financing platform companies is expanding rapidly, and the operation is not standard enough. Local governments provide guarantees in violation or disguised form, and the risk of debt repayment is increasing day by day.

The State Council requires local governments at all levels to conduct a comprehensive clean-up of debt on financing platform companies, and properly handle debt repayment and subsequent financing of construction projects in line with the principles of classified management and differentiated treatment.

The debts included in the liquidation scope include debts directly borrowed by the financing platform company, delinquent or supported by credit support such as guarantee and repurchase.

The debts are classified and classified according to the following principles: (1) financing platform companies borrow money for undertaking public interest projects and rely mainly on financial funds to repay debts; (2) financing platform companies are responsible for borrowing loans from public interest projects, and projects have stable debt receipts and rely mainly on their own income repayment debts; (3) financing platform companies are responsible for borrowing debts from non public interest projects.

For projects under construction which are originally funded by financing platform companies, the follow-up funds should be properly handled according to different situations.

Local governments at all levels must strictly examine the investment budgets and sources of funds, and all kinds of funds should be concentrated on Project Renewal and ending, strictly controlling new projects and preventing "half pulling" projects.

After the local government has examined and approved, the source of repayment depends mainly on the public funds of public finance. In addition to the laws and regulations of the State Council, it is no longer necessary to continue financing through financing platform companies. It is necessary to guide the social capital to solve the problem of construction funds through the budget and other channels.

For other projects under construction, the original loan banks should be re examined. Projects that meet the requirements of the state's industrial policies, land policies, environmental protection policies, credit Prudential Management Regulations and macro-control policies should continue to provide loans and promote project construction according to the agreement. Local governments should clear up and properly handle projects that do not meet the above requirements.

Local governments at all levels should take effective measures to implement debtors' debt paying responsibilities.

The debts of the financing platform companies should be repaid in accordance with the agreement. They should not unilaterally change the original debt and debt relationship, nor pfer debt paying responsibilities and evading debts.

Financing platform companies should co-ordinate the arrangement of funds, formulate a debt repayment plan, specify the time limit for debt repayment, and assume the responsibility of paying debts and paying interest.

The financing platform company that has been set up before the notice is issued shall be cleaned up according to the following requirements: the financing platform company that only undertakes the financing task of the public welfare project and relies mainly on financial funds to repay its debts will not be allowed to undertake any financing task in the future. The local governments concerned should make proper handling of the company after the debt repayment responsibilities are clearly implemented and the repayment measures are implemented. The financing platform company that undertakes the financing tasks of the above public welfare projects and also undertakes the construction and operation tasks of the public welfare projects shall divestiture the financing business after the implementation of the debt paying responsibilities and measures, and no longer retain the function of the financing platform.

The financing platform company that undertakes the financing of public welfare projects with stable operating income and relies mainly on its own income to repay debts, and the financing platform company that undertakes the financing of non commonweal projects, should make full use of the relevant provisions of the company law of the People's Republic of China to enrich the capital of the company, improve the governance structure and achieve commercial operation. It is necessary to promote diversification of the investment entities and improve the ownership structure of the financing platform companies through the introduction of private investment and other market-oriented channels.

For other financing platform companies with different types of financing functions, they should also be cleaned up according to the above principles.

In the future, if local governments really need to set up financing platform companies, they must strictly follow relevant laws and regulations, inject capital in full, and public assets such as schools, hospitals and parks should not be injected into capital platform companies as capital.

The financing and guarantee of financing platform companies must strictly enforce relevant regulations.

After the liquidation and consolidation, the financing platform of the company must be standardized. The application for loans to the banking financial institutions must be carried out to the project, with the Incorporated Company as the main body of the loan, and in line with the relevant loan conditions.

Financing projects must meet the requirements of national macro-control policies, development plans, industry plans, industrial policies, industry access standards and general land use plans, etc., and perform the project approval, approval or filing procedures according to the relevant provisions of the state.

We must strictly use funds in accordance with the prescribed purposes, stressing efficiency and steady operation.

The State Council requires banking financial institutions to strictly regulate credit management and strengthen risk identification and risk management.

We should implement the conditions for the borrowers to enter into the business, perform the examination and approval procedures according to the principle of commercialization, and carefully assess the borrowers' financial capability and repayment sources.

Where there is no stable cash flow as the source of repayment, no loan shall be granted.

The new loan to the financing platform company should directly correspond to the project and strictly enforce the relevant state capital requirements.

We must strictly enforce loan concentration requirements, strengthen loan risk control, adhere to the principles, procedures and standards of credit approval.

In accordance with the requirements, the rights of the project assets or projects that are eligible for the pledge will be used as loan guarantees.

It is necessary to seriously examine the loan investment and ensure that loans meet the requirements of national planning and industrial development policies.

We should strengthen post loan management and intensify supervision and inspection.

We should appropriately raise the risk weights of loans for financing platform companies, and strictly classify loan quality according to different situations.

For the loan of financing platform companies, banking financial institutions should adhere to the principle of "package by package, check by item, reassess, rectify and preserve", and take timely remedial measures to ensure the safety of credit assets.