Structural design and performance analysis of China's Local Government Financing Vehicles

In this paper, we investigate the reasons for the establishment and operation models of China's Local Government Financing Vehicles (LGFVs). We also outline the current literature on the structural arrangement and the developments of LGFVs. Moreover, we employ the empirical analysis to examine the driving factors of the financial performance of LGFVs. Using 1,042 LGFVs that issued debt securities during the period 2011-2016, we find that the financial performance of LGFVs is positively associated with local tax revenues, local education levels, local saving deposits, and firm size but negatively associated with local government spending and firm leverage ratios. Based on our empirical findings, we finally propose policy recommendations for the establishment of relevant investment and financing platforms.