The State Council Standardizing The Local Financing Platform &Nbsp; Public Assets Must Not Be Injected.

The campaign to clean up and standardize local financing platforms has been officially launched.

Yesterday, the Chinese government announced the notice issued by the State Council in June 10th on strengthening the management of local government financing platform companies (hereinafter referred to as the notice).

The notice calls for a strict distinction between public welfare and commercial projects. The source of repayment depends mainly on public finance projects, which no longer rely on financing platform companies.

According to sources, at present, the Ministry of finance, the development and Reform Commission, the people's Bank of China and the Banking Regulatory Commission have begun to formulate detailed rules and specific implementation plans, improve relevant policies and strengthen guidance and supervision over this work.

The circular requires all localities to report the implementation of the work to the State Council before December 31, 2010.

Government secured debt or new and old delimit

For the stock debt, the notice requires local governments at all levels to conduct a comprehensive clean-up of the debt of the financing platform company, and properly handle the problem of debt repayment and subsequent financing of construction projects according to the principle of classified management and differentiated treatment.

According to the statistics of the supervision department, as of the end of 2009, the loan balance of the local government financing platform 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, and the new loan for the whole year was 3 trillion and 50 billion yuan, accounting for 34.5% of all the new general loans.

The notice requires local governments at all levels to implement the debtors' liability for paying debts.

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.

The notice also reaffirmed the strict implementation of the guaranty law. Local governments at all levels should not guarantee financial platform companies directly or indirectly with financial revenues and state assets.

Guo Tianyong, director of the China banking research center of Central University of Finance and Economics, told the first Financial Daily reporters that the document did not specify whether the guarantee provided by the local government for financing platform was effective before, and this guarantee has become a fait accompli.

Guo Tianyong said that if the previous guarantee was null and void, and the local government only assumed the limited liability of the scope of contribution, it might lead to the dominance of the bank debt risk. The biggest possibility was to adopt the old and new method of delimitation. The former guarantee was effective, but the new government guarantee would not be allowed in the future.

Public assets should not be injected into financing platform.

One of the worries about the risk of local financing platform is that after the breakup of the capital chain, there may be uncompleted projects and projects. The notice requires that the follow up funds should be properly handled according to different circumstances for the projects under construction which are originally undertaken by financing platform companies.

The public interest in construction projects that rely mainly on financial funds for repayment sources should not continue to finance through financing platform companies. We should guide social capital to solve the problem of construction funds through financial budgets and other channels.

Guo Tianyong believes that in the future, we should strictly distinguish between public welfare projects and commercial projects, and straighten out the functions of the government.

For commercial projects, they should be invested in private capital. The government will reduce investment burdens and use limited funds for public welfare projects. For public welfare projects, local governments should spend their money within their means. On the other hand, they can solve the financing problems of public welfare projects by issuing local bonds.

For the clean-up of the platform company itself, the circular requires that the financing platform company that only undertakes the financing tasks of public welfare projects and relies mainly on financial funds to repay debts, and will no longer undertake the financing task in the future. The financing platform company that undertakes the financing tasks of public welfare projects while undertaking the construction and operation of public welfare projects should divestiture the financing business after the implementation of debt paying responsibilities and measures, no longer retain the functions of the financing platform; undertake the financing platform company that has a stable business income public financing project and rely mainly on its own income to repay debts, and the financing platform company that undertakes the financing of non commonweal projects, so as to enrich the company's capital, improve the governance structure and realize the commercial operation in accordance with the relevant provisions.

The notice clearly pointed out that public assets such as schools, hospitals and parks should not be injected into capital platform companies as capital.

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Local debt is included in budget management.

From the point of view of specific division of labor, the State Council requests that the Ministry of finance should speed up the establishment of debt management information system, accounting and statistical reporting system of financing platform companies, and the regular reporting system of debt information of financing platform companies, so as to realize the full caliber management and dynamic monitoring of debt financing of platform financing companies.

The notice put forward that local government debt revenue and expenditure should be included in budget management.

This is the first time that the government has put local debt into budget management.

The financing of local financing platform is out of budgetary management, which is outside the financial supervision system, and the resulting non pparent and opaque state is one of the important reasons for the increasing risk of local financing platform.

According to the existing budget law, the local government has no right to issue bonds, but now it is the form of local bonds issued by the Ministry of finance.

However, Zhu Xiaohuang, vice president and chief risk officer of the Construction Bank, believes that the Treasury's issuance of bonds is behind the national credit, while the direct issuance of local government bonds is entirely based on the credit of the local government, which is very different in substance.

He suggested that we should gradually release restrictions on local government bonds and introduce market-oriented financing mechanisms.

Guo Tianyong believes that in addition to allowing local borrowing, it should also examine and assess the effectiveness of the existing tax sharing system. At present, local governments have less money and more money, and their financial rights and powers do not match. This is one of the important reasons for the flooding of local financing platforms.