A Study On The Local Government Debt Financing Mode And Risk Evaluation In China

The local government debt has been existing for a long term in China and is growing at all levels with the deepening of economic and political system reform. The local government debt and any way of guaranteeing debt is forbidden by the Budget Law and the Guarantee Law of the P.R.C, in reality, however, local governments at all levels have raised a lot of debt in various ways, most of which were in the name of enterprises and projects debts. These debts are not presented and reported in the government budget. However, local governments have all the responsibilities of paying off the debt. If these debts keep growing incrementally and chaotically, the national debt and finance crises will come up. This dissertation focuses on a research and understanding of current government debt situations, the reasonable demand of local government debt, and tends to provide formal and open financing channel to the local government debt, constructs a feasible local government debt financing model, and seeks for the solutions of local government debts issues.This dissertation will describe global current research results on the local government debts; classify the government debts, government debt financing model and government debt risks. This essay will tease the issues on the main body of financing, debt financing model, etc. in the angle of current local government debts financing situation; summarize the characters of hierarchies and regions. In the aspects of international experience, this dissertation will introduce the local government debt financing model in America and Japan including administrative control, regulations control, negotiation control and market control; analyze why local government debt demand arises in the angle of the relationships between governments and behavior logics; and conclude that local government debt financing demand is reasonable.In the angle of government’s functions and expenditure divisions, the local government debt is rationale and effective as a tool of financing governments’ capital expenditure; taking the efficiency evaluation of financing model and monitor methods selections into account, this dissertation will examine these elements that influence financing model; by case studies, this dissertation will present that the choice of financing model depending on the debtors’ economic environment, market situation and projects’ demands, etc. thereby a local government debt financing model will be built up properly for China. The questionnaire collects3provinces and37cities financial data, through factor analysis by SPSS17.0,37cities’local government debt risks are analyzed; in order to ensure the local government debt financing model operates in a sound way, this dissertation will give some feasible suggestions as references in the governments’debt management and control purpose.This dissertation has the following conclusions:the local financing vehicles are the main body of local government debt financing, the bank loans are the main format of government debt, the issuing of local government bonds is at the exploratory stage and is not matured. Bonds financing is the main financing format in most western developed countries. However the capital market in China is not matured and inter-government fiscal relations are not straighten out, therefore, banks will dominate for long time, and meanwhile local government bond issuing will act as an implementation of bank loans for a long term. It is unrealistic that a single financing model dominates. In the process of standardizing government financing platforms behavior, compared with the commercial banks, policy banks are more suited to the government financing platform loans. Fiscal revenue and deficit risks, debt size and structure risks, the fiscal expenditure risks and financial risks are the key elements of local government debt risks.