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Does funding sources’ regulation affect Chinese local governments’ financing behavior?

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  • Dong, Yan
  • Hu, Dingyuan

Abstract

In China, where urban investment and development companies (UIDCs) established by local governments have issued an excess of urban investment bonds (UIBs), the central government has sought to reduce risk in the UIB market. In empirical testing, we specifically examined how restrictions on UIDCs’ use of land revenues have affected the financing behaviors of local governments. Our results revealed that, following the restriction, the issuance of UIBs dropped, whereas the issuance of local bonds rose, which indicates that the regulation indeed improved local governments’ financing behaviors.

Suggested Citation

  • Dong, Yan & Hu, Dingyuan, 2024. "Does funding sources’ regulation affect Chinese local governments’ financing behavior?," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s154461232401359x
    DOI: 10.1016/j.frl.2024.106330
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    References listed on IDEAS

    as
    1. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    2. Ms. Yuanyan S Zhang & Mr. Steven A Barnett, 2014. "Fiscal Vulnerabilities and Risks from Local Government Finance in China," IMF Working Papers 2014/004, International Monetary Fund.
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