Spring And Autumn Period:the Time Of City Debt—A Study On The Debt Of The Local Government Under The Old Budget Law

Before 2014,the budget law of China does not allow the local government to be in debt, however, during the 30 years,of the reform and opening up, tax reform does not lead to a high degree of property rights and powers for the local governments and need external financing system channels as a result.The local government plays an important role in economic development, many scholars believe that the act of local government is an important force for China to achievesuch a great economic miracle. Also,the local government exist as a special player in the market. Tax reform has led to a high degree of divergence between public purse and power of local governments.Central government takes control of financial resource but let local government execute specific business, which results in their short of funding during the process of executing. So local governments need to look for external financial resource.Under the competition mechanism, local officials motivated by promotion and acquiring local political resources have powerful impetus to propel the local economic development and perform well on what Central government delegated. In this case, getting external financing will be urgent.However, under our current legal system, local government are not allowed to issue debt, so they have to raise funds in a disguised way.Under the tournament mechanism of in the local competition, the local officials have carried out a powerful driving force of local economic and social development and thus an urgent need for foreign institutional financing. In addition to bank debt, local government through corporate debt issue local bonds channel is becoming an important way to local government.Encouraged by the 4 trillion stimulus policies led to the local government matching funds of high demand and national policies, the city debt has become an important channel for all levels of government.However, the regulatory regime under the NDRC, the changing legislation become the norm instead of the normal regulatory system, which led to the uncertainty of government funds. As a result, the local governments can not establish a long-term financing plan and load the opportunistic excessive debt. And also,the funds are often used for other purposes. The key issue is to allow the local governments to debt normalized and the local government debt must be included in the big-budget framework.In this paper, based on the recognition of the invisible local government debt system, an analysis of the mature local government debt issuing system for both the United States and Japan has been made. United States issues local government debt through public offering in their well-developed capital market. Japan issues local government debt to banks in private because banks are the major players in the financial market. But, for both of them, local government debts are issued in an institutionalized way-and subjected to rigid limitations of government system.For China’s local government debt, the key to solve the problems is "opening the main entrance while blocking partial road", allowing local governments to borrow and including these debts in the budget framework to make them legal. Under the new "Budget Law", local government debt issuance will be legal and institutionalized. However, this is only the beginning. There are more improvements need to be made on the standardization of local government debt plan.During the process of standardization of our local government, the issuance of local government bonds also need to be standardized and institutionalized within existing framework.