Maturity Mismatch of Investment and Financing of Local Stateowned Enterprise: Causes and Countermeasures
- SHEN Hongbo, HUA Linghao & LANG Ning
- SHEN Hongbo, HUA Linghao & LANG Ning(Fudan University, 200433)
Local state-owned enterprises (SOEs) are a core force driving China's economic development and should play a leading and pioneering role in the supply-side structural reform. But they are faced with a prominent predicament caused by a too high debt ratio and the maturity mismatch in investment and financing activities. This papers uses non-listed SOEs above the designated scale in China's industrialized enterprises database (CIED) from 2005 to 2013 as samples, constructs an investment-liability model to analyze the dynamic relationship between short-term debt changes and long-term investment, and probes into the causes of this mismatch in light of soft budget constraints and the structural problems of Chinese financial market. The results show that: (1) The investment of both central and local SOEs relies heavily on new borrowing, not retained earnings, indicating a severe problem with soft budget constraints. (2) The ability of financial market to provide long-term loans is weak, which cuts off SOEs' access to long-term debt financing. (3) SOEs, especially local SOEs, suffer from maturity mismatch problems for they rely heavily on incremental short-term debt for investing. To reduce local SOEs'debt ratio and improve their debt structure, integrated countermeasures should be taken targeting SOEs, banking credit, government behaviors and the capital market, so as to increase local SOEs' internal financing capacity and better the structure of the financial market.
- Soft Budget Constraint, Financial Market Structure, Maturity Mismatch, Local SOEs