Research On Subnational Borrowing In China

At present, a number of laws and regulations are clearly defined in China, the localgovernment shall not borrow, but this does not mean that local government debt does notexist. In addition to the legal debt outstanding performance on behalf of the variousfunctional departments of local governments to "diversification finance", established alocal government financing platform and the City Investment Company, borrowing a lotof debt. And because of the asymmetry of information, forming a large amount of hiddendebt, but most of the implicit debt is high risk, easily converted into the bank’s bad loans,leading to the current system, in whole or in part, borne by local governments debt of thefinal debt service obligations. If these long-term debt in the government statistics andmonitoring, will become an important factor in the induced and exacerbated the nationaldebt and financial crisis.In order to solve the financial authority and powers of local government does notmatch the problem, while avoiding the risk of long-term accumulation led to the crisis,local public use debt to raise funds for construction, to make debt explicit, eliminateinformation asymmetry arising from regulatory difficulties, and it public projectconstruction costs allocated to the project benefit period, the costs and benefits to match,so the central government should take full account of the reality of the necessity andfeasibility of local government bonds issued by local government, decentralization tolocal governments to issue local bonds to raise funds for local public infrastructureprojects. And local governments is an important part of the system of government, localgovernments in carrying out its functions need to have appropriate financial guaranteeheld debt of local government property rights shouldTherefore, a comprehensive understanding of the specification of local governmentdebt, the development of local government bond market in order to reduce its debt riskconstitutes the theme of this paper.From the past, the central government instead of local governments to issue localgovernment bonds, the angle of view, which is conducive to enhance the credit of localgovernment bonds, to improve the efficiency of bond issuance, reducing regionalimbalance in development between Central on behalf of local government debt negativeimpact of such release is not conducive to play the enthusiasm of the local government, local government bonds, interest rates and the scale, duration, and a transitional featureissue.At present, China’s bond market initially formed the majority of residents andinstitutional investors have a huge demand for investment, while developing the localgovernment bond markets of central and local finance, capital markets are favorable,conditions and timing of local government debt supply is gradually mature. At the sametime, China should vigorously develop local government bonds secondary market, andstrengthen the mechanism of the issuers budget constraints, and gradually perfect thesupporting facilities by the United States and Europe as the representative of the federalstate and the unitary state as the representative of Japan management system of localgovernment bonds to be analyzed and compared. Practice has proved that combined withthe local government borrowing abroad, the local government debt can speed up thedevelopment of local economy and public welfare undertakings. In the management oflocal government bond issuance at relatively low levels, for which we should learn fromthe successful experience of foreign countries in this regard, but the local governmentborrowing in the form, duration and management tools will be subject to the polity and avariety of economic factors. And therefore must not copy from strong local bond marketshould be in line with national conditions.With the accelerated pace of the local bond market, China’s four provinces in therelatively developed the pilot local government bonds issued, such as pacing ahead stillon the road to discovery in order to launch a nationwide At this stage, China shouldestablish a comprehensive local bond system, vigorously develop the local bondsecondary market and continuously push forward the coordinated reform of the localbond financing to take concrete policy measures to promote local bond marketdevelopment.