Abstract
Whether land finance has increased local financial risks has always been a hot topic in society and in the academic circle. This article firstly describes the overall characteristics of the development of local finance in China. By establishing a matrix containing 16 indicators for local financial risks, it has analyzed the characteristics and overall development trend of financial risks at the provincial level in China as a whole. Furthermore, it explores the casual effect of land finance on local financial risks by ordinary least squares (OLS) and two-stage least squares (2SLS) models on the basis of panel data covering 178 prefecture-level cities from 2009 to 2017. The results show that from 2017 to 2019, there still existed great risks in local finance in all provinces and cities across the country, and the local financial risks of all provinces and cities showed an upward trend and were mostly related to the high dependence on land finance. By analyzing the data of the last decade, we can find that the government’s dependence on land finance had increased, along with the increasing financial risks which it faced. In particular, they exerted a more prominent impact on the eastern regions and other regions with a low urbanization rate in China.
Highlights
Sustainability 2021, 13, 5937. https://Land finance is an important part of local finance in China as well as a financial operation mode for obtaining income from land resources
The subsequent chapters of this paper are arranged as follows: Section 2 is about the overall measurement of local financial risks in China; Section 3 is about the measurement of the impact of land finance on local financial risks; and Section 4 is about the conclusion and policy recommendations
Explicit risk refers to the specific local financial risk which is less difficult to confirm; its risk triggering factors are very obvious, and the risk losses can be accurately evaluated; implicit risk refers to the responsibility risk which local governments need to bear at the moral level, and common hidden risk includes the pressure from interested groups and the expectations of the public, while risk indicators are often difficult to effectively detect and their hidden state is relatively high; direct risk refers to the responsibilities which will arise under any circumstances, so they can be predicted according to some specific factors rather than determination; and contingent risk refers to the liabilities caused by any potential discontinuous events
Summary
Land finance is an important part of local finance in China as well as a financial operation mode for obtaining income from land resources. The sustainability of this model has been widely questioned [4] For local governments, both their own financial risks and bank liquidity risks have been greatly aggravated under the influence of the leverage of land finance, bringing hidden problems to the sustainable development of the local economy [5]. The negative effects of land finance began to show up, the problem of asset bubble accumulation intensified, and the possibility of local government debt risks increased greatly. All of these posed a hidden danger for the outbreak of systemic financial risks [7]. The subsequent chapters of this paper are arranged as follows: Section 2 is about the overall measurement of local financial risks in China; Section 3 is about the measurement of the impact of land finance on local financial risks; and Section 4 is about the conclusion and policy recommendations
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