Summary:
China's local economic development and large-scale urban construction rely heavily on the urban land market. Land is used as a form of leverage to instigate the financing of urban construction, which also triggers the risk of excessive local debt. An important entity in local debt is the financing platform. The financing platforms are local government-backed investment companies, which are used to seek financing channels to bypass the legal constraints. Most researchers focus on municipal investment bonds, while less attention is paid to project loans from banks, when in fact bank loans account for a larger share of local debt. Among bank loans, land mortgages play an important role. However, due to data limitations, research on the land mortgage behavior of local financing platforms rarely includes rigorous empirical analysis based on microdata. This study is the first to analyze micro-level land mortgage data, and it finds that financing platforms have higher mortgage rates and larger amounts in land mortgages. We also discuss the strong motivation and ability of local governments to intervene, leading to a mismatch in credit resources that is inefficient and contains a large debt risk. This study makes the following contributions. (1) It studies urban land in China, whereas most researchers study land transfers by local governments or debt financing by financing platforms. This paper is the first to investigate financing platforms for land mortgages and conduct an empirical analysis based on micro-level data. (2) It contributes to the study of China's local debt risk by verifying the impact of credit discrimination on land mortgages, providing evidence that local government intervention leads to higher debt and inefficient allocation of credit resources, and revealing the potential risk of excessive land mortgage loans. (3) It provides empirical support to solve the problem of high leverage in China. We demonstrate that local governments have an inescapable responsibility for the high economic leverage. In the empirical section, based on the Chinese Land Market website (www.land-china.com), we collect the details of land mortgages from January 1, 2006 to February 28, 2016. The regional economic data is taken from the Regional Economic Statistical Yearbook, the China Urban Statistical Yearbook, and the Wind database. The list of financing platforms is taken from the China Banking Regulatory Commission. The data on officials are collected from the resumes on People's Daily Online, the Xinhua website, and the Baidu Encyclopedia. The results show that the mortgage amounts and rates are significantly higher with financing platforms. Although mortgages by financing platforms are restricted through policies and regulations, the overall over-borrowing is noteworthy. Given the systematic differences between financing platforms and non-platform companies, we use the propensity score matching (PSM) method for robustness testing. We then further explore the political and economic factors behind the phenomenon. First, we examine the regional heterogeneity and find that mortgage loans and mortgage rates were significantly higher in the central and western region. Second, we investigate the impact of municipal investment bonds, and find a positive relationship between the stock of municipal investment bonds and land mortgages. Third, we discuss government goals and official incentives, and find that the increase in land mortgages is related to financing needs under the pressure of expansion. Finally, we explore the existence of government intervention through the differences in coefficient of the different government levels and land uses. A series of empirical results shows that a financing platform can indeed obtain more land mortgage loans and higher mortgage rates. The reason behind this is that local governments have strong motives and intervention capabilities, resulting in inefficient allocation of credit resources. This means that even such a low-risk financing channel still carries local debt risk and crowds out the financing space of other entities. In future, they should be regulated through a reform in the budgetary and financing system, or the development of government financing channels. Further research should include an empirical analysis of the impact of the financing platform's own performance on land mortgages. Specifically, based on the findings of this paper, we would further control the characteristics of local financing platforms, including financial data and other information related to solvency.
张莉, 魏鹤翀, 欧德赟. 以地融资、地方债务与杠杆——地方融资平台的土地抵押分析[J]. 金融研究, 2019, 465(3): 92-110.
ZHANG Li, WEI Hechong, OU Deyun. Land Financing, Local Debt, and Leverage: Analysis of the Land Mortgage Behavior of Local Government Financing Platforms. Journal of Financial Research, 2019, 465(3): 92-110.
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