| As China’s economic reform and public finance system development, especially the accelerated process of urbanization, on the one hand, in the allocation of powers, local governments play an increasingly important role in China’s economic and social development, and undertaken more and more responsibility of local economic, social development and urban infrastructure construction, resulting in local government expenditure has increased, the local government is increasing financial pressure. On the other hand, since the1994tax system reform, in the distribution of financial power, the Central Government learn more of local government financial resources, rising in the central government in the country in the proportion of fiscal revenue, while also decreasing the national fiscal income of local fiscal revenue.In order to effectively ease the financial balance of payments pressures, Local governments need to further broaden the sources of funding. However, subject to the restrictions on the legal system, local government almost no direct financing of the space.Setting up the investment and financing platform for financing local government is a kind of alternative financing method, which China’s local governments used to circumvent legal obstacles. and solved the problem of local government funding gap as an alternative form of municipal bonds under the framework of our current tax system.November2008to the first half of2010, in order to cope with the international financial crisis, our country proposed a proactive fiscal policy and loose monetary policy. So that the financing scale of the investment and financing platform for financing local government increased quickly, which beyond the expectations of central government, caused attention of the market participants, decision-makings and regulators. Since2010, State Department and the regulatory authorities introduced a series of policy documents, in order to find out the investment and financing platform for local government debt levels, regulate the investment and financing platform for financing local government, resolve local debt risk, and establish a standard, long-term sustainable mechanism.In the current macro-economic policy context, because of the credit financing constraints of regulatory policy of China Banking Regulatory Commission, the investment and financing platform for the local government is no longer possible to access to credit financing for urban infrastructure, Quasi-municipal bond is the only channel to the investment and financing platform for the local government to access to credit financing for urban infrastructure.On the othe hand, the national development and reform commissionin troduced a series of policy documents in november20,2010, placed a full of recognition on behavior of Quasi-municipal bond, but also raised the objective requirements to regulate Quasi-municipal bond.However the issuer of Quasi-municipal bond is also from the city investment company of provincial, municipal-level city gradually extended to the prefecture-level city, or even county or county-level development zones in the city.In order to control of the risk of Quasi-municipal bond, the national development and reform commissionin announced the "211" policy, which had meaned that the relevant state departments have realized the need for appropriate scale control of Quasi-municipal bond, but the "211" policy didn’t grasp the nature of the Quasi-municipal bond risk, and simply controlled the distribution count. So we must study the appropriate issue size of Quasi-municipal bond to control of the government financing border, constrain the short-term behavior of local officials, and prevent the risk of Quasi-municipal bond.At this stage, although many scholars had studied financial reform and municipal bonds, the vast majority of research focused on the development of foreign experience in the municipal bond market and the introduction of local governments to issue municipal bonds present the feasibility and the need for research, while the rapid development of Chinese Quasi-municipal bond has very little research.In this paper, we discuss in detail the economic theory of financing of local government in bond marke:Theory of public goods provides the theory basis for the local government to perform economic development functions, and provide the local quasi-public goods; Fiscal decentralization theory emphasizes the local government in resource allocation to make up for market imperfections and improve the efficiency of regional resources to meet the diverse needs of the residents of the regional role. The municipal bond theory provides the theory basis for Local governments through the issuance of municipal bonds to raise funds to provide local public goods, will help to improve the level of local public goods supply. At the same time, Quasi-municipal bond is the only channel to the investment and financing platform for the local government to access to credit financing for urban infrastructure. used gaps pressure in local government financing as the starting point, After briefly introducing the local government investment and financing platform and its operating mechanism, we analysis the background of Quasi-municipal bond, reviewed the history and status of Quasi-municipal bond, and detail analysis the main problems of Quasi-municipal bond markets.In order to control of government debt resulting from the risk of Quasi-municipal bond, we need to build the appropriate scale mode used to evaluate the risk of government debt, on the basis of reasonable government debt statistics. So that, by analyzing the risk of the city investment company and Local governments, we explore the formation of credit risk of Quasi-municipal bond, analyze and summarize the current latest Quasi-municipal bond credit rating system, comparativly analysis of the major credit risk measurement models, and emphasis on necessary to the research of the appropriate issue size of Quasi-municipal bond.In this paper, we apply he basic idea of the KMV model to the Quasi-municipal bonds credit risk assessments, summarized the most current standards of the city to quasi-municipal bond credit rating, analysis the latest credit risk assessment model comparatively, constructed the calculation model to the debt issue size of Quasi-municipal bond, and based on the issuance of quasi-municipal bond by using Beijing, Shanghai, and Wuhan tax data.An appropriate scale of Quasi-municipal bond requires strong regulatory measures to protect, for debt financing beyond the modest scale of the local government, called for measures to strengthen the debt service efforts to control the behavior of the new government of the borrowing, the size of the government debt as soon as possible back the debt within risk control standards; for the size of government debt below the level at the appropriate scale, should allow the city to vote bonds issued. However, the lack of a system subject to regulation and supervision offside two aspects, An appropriate scale of Quasi-municipal bond is difficult to be effectively controlled. Finally, for the healthy development of Quasi-municipal bond, we made recommendations to investment and financing platform and Quasi-municipal bond for future development.
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