County Financial Risk And Economic Development

In time of a new round of economic restructuring, the county economy has develpen into a new historical period with necessity to strengthen the county economy, narrow the differences and keep the stability so as to fulfill the goal of a well-off society. Traditional analysis ascribes the problems of less developed areas to the 'development' factors, such as the historical foundation, location, capital, labor force, and technology and so on, but to ignore the'stable' factors or risk-relevant factors. However, as higher uncertainty in our macroeconomic situation and anaemic growth, the problem of financial security has penetrated cross the economic regions at all levels, the county economy's anti-risk capability and the tradeoff between risk control and sustainable development are receiving more and more attention. This paper focus on the problem of the county financial risk and its influence on the county's economic development, by incorporating the emerging theory of Macro Financial Engineering and the real practice in the undeveloped region.The theoretical review follows the context from general macro financial risk, the regional financial risk to the county financial riks and their relationship with economy. Then we based on the theory of macro balance sheet and use contingent claims analysis to establish the theory of county financial engineering, which take estimation on the macro financial risk level and cross-sectoral risk transmission by all the respects from both historical information and market value, so as to find out the most important factors and establish the county risk evaluation system and county economy performance appraisal framework.Under the framework of county financial engineering, we first make a fully summary of the evolution analysis and practical analysis of the county financial risk in our country, and further to establish an analysis system to estimate the county financial risk and direct the empirical analysis on the Tongshan county of Hubei province. Then we introduce the theorical model of contingent claims analysis, preparation standards of macro balance sheet as well as the data collecting and processing method in the county rerion. During the empirical analysis phase, with3-year data research and field survey, we establish the macro book-valued balance sheet, the market-valued balance sheet, the macroeconomic-balance-sheet matrix and the overall balance sheet of the county. And further we take structural analysis on the capital structure, term structure, currency structure and solvency level to extract risk factors, form the evaluaton system and composite the county financial risk comprehensive evaluation index using the principal component analysis method, to finally give the conclusion on the county's comprehensive risk level.On the basis of the county financial risk, we analyze its relationship with the economy using the risk-economy model of feedback mechanism to make regression analysis between the comprehensive evaluation index and county GDP. As the macro economic income can be seen as another way to evaluate the economy, we based on the macro economic captital theory to count the macro economic value added and macro RAROC in the county to test its real economic level both on the risk and return consideration, so as to help with the county macro financial risk management system and strategic innovation path to the county economy.Through the theoretical and empirical analysis, following main conclusions should be concerned. First, our paper affirms importance of the county financial risks to the development of the county economy, and suggests the necessity to include the financial stability index into the county's economy comprehensive assessment system. Second, based on the model and the method of the theory of county financial engineering system, we find that the characteristics and performance of the sample county's financial risk conform to the general performance of the country, especially the highlighted structural risk in the sectors, though the overall risk level is under control. Third, study on the correlation of county financial risks and economic development shows that unexpected coefficient signs, which reflect the game effect between the economy development influence and risk influence in the less developed area.Fouth, evaluation on the county risk and economic performance based on macro economic capital shows that the corporate sector and household sector need more economic capital against unexpected losses; In the productive sector, financial sector is more efficient on the risk-economic capital operation than that of the corporate sector, the difference of which will drive the flows of the capital through internal mechanism till a new equilibrium reached. Fifth, on the basis of systematic summary of the full text, we raised a series of measure and policy on the county's macro financial risk management in respect of legal environment, market construction, risk monitoring, and economic linkage and so on.