Local government financing vehicle
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In [[China]], a '''local government financing vehicle''' ('''LGFV''') ({{zh|c=地方政府融资平台}}) is an investment company formed by local governments to raise funds, usually by borrowing money to finance [[real estate development]] and other local infrastructure projects.{{cite journal |last=Kozhevnikov |first=M. Yu. |year=2019 |title=Debt of Local Governments of China: Assessment Issues and Analysis |journal=Studies on Russian Economic Development |publisher=Pleiades Publishing |volume=30 |issue=6 |pages=714–716 |doi=10.1134/s1075700719060066 |issn=1075-7007 |s2cid=214377956}} |
In [[China]], a '''local government financing vehicle''' ('''LGFV''') ({{zh|c=地方政府融资平台}}) is an investment company formed by local governments to raise funds, usually by borrowing money to finance [[real estate development]] and other local infrastructure projects.{{cite journal |last=Kozhevnikov |first=M. Yu. |year=2019 |title=Debt of Local Governments of China: Assessment Issues and Analysis |journal=Studies on Russian Economic Development |publisher=Pleiades Publishing |volume=30 |issue=6 |pages=714–716 |doi=10.1134/s1075700719060066 |issn=1075-7007 |s2cid=214377956}} |
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LGFVs allow local governments to finance infrastructure projects while complying with laws that prohibit them from issuing [[Bond (finance)|bonds]] or having deficits. Such restrictions and the need to invest in the local economy have |
LGFVs allow local governments to finance infrastructure projects while complying with laws that prohibit them from issuing [[Bond (finance)|bonds]] or having deficits. Such restrictions and the need to invest in the local economy have resulted in local governments relying heavily on LGFVs as a fundraising tool. |
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LGFVs rarely make enough returns to pay back their debts, often requiring local governments to raise more money to pay back their creditors. Both the number and the indebtedness of LGFVs have increased in recent years, sparking fears about their inability to repay debts as well as subsequent [[default (finance)|defaults]].{{cite journal| last=Clarke | first=Donald C. | title=The Law of China's Local Government Debt Crisis: Local Government Financing Vehicles and Their Bonds | journal=GWU Law School Public Law Research Paper | date=2016-06-05 | ssrn=2821331 | url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2821331 | access-date=2021-02-16}} Although LGFVs are operated by local governments, who investors assume will remain accountable for them, the often-unsecured debt is classified as "corporate debt", and the [[State Council of the People's Republic of China|central government]] has indicated it would not bail out a bankrupt LGFV. |
LGFVs rarely make enough returns to pay back their debts, often requiring local governments to raise more money to pay back their creditors. Both the number and the indebtedness of LGFVs have increased in recent years, sparking fears about their inability to repay debts as well as subsequent [[default (finance)|defaults]].{{cite journal| last=Clarke | first=Donald C. | title=The Law of China's Local Government Debt Crisis: Local Government Financing Vehicles and Their Bonds | journal=GWU Law School Public Law Research Paper | date=2016-06-05 | ssrn=2821331 | url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2821331 | access-date=2021-02-16}} Although LGFVs are operated by local governments, who investors assume will remain accountable for them, the often-unsecured debt is classified as "corporate debt", and the [[State Council of the People's Republic of China|central government]] has indicated it would not bail out a bankrupt LGFV. |
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