Research On My Country's Local Government Bond Financing Mechanism

Local government debts have existed off and on in China since 1949,which have not been sufficient attention.China's local government debts have been paid close attention until European debt crisis in 2008.Slower economic growth causes dilemma of local governments for rigid local fiscal expenditures with significant slowdown in local fiscal revenue in a "new normal".At the same time,local governments are responsible to manage social and economic affairs,so local government debts become inevitable.The state grants the rights of local government bond financing in the end.It is of great theoretical and practical significance that local governments get legal claims of bond financing to continue to supply better infrastructures and public services.Then,how does bond financing of local government evolve in China?Why is"bond" channel an inevitable choice for standardizing local government financing?Whether do local government bonds promote economic growth and whether are there default risks of local government bonds?In the stage of standardized development,how to improve domestic bond financing mechanism of local governments in China.On the basis of perfecting domestic bond financing mechanism,how to build international bond financing mechanism of China's local governments?The paper is to solve the above mysteries.Based on detailed literature review,this paper works on the following:First of all,we construct a theoretical analysis framework of local government bond financing in the new era.Secondly,it is tested that local government bonds have positive effects on economic growth with spatial econometric model.Thirdly,there are no negative effects in general that debt default risks of China's local government bonds do not exist with panel data model.Then,the paper puts forward standardized management to perfect domestic bond financing mechanism.Finally,international bond financing mechanism of China's local governments is proposed on the basis of improving domestic bond financing mechanism.The possible innovations of this paper are the following:1.This paper creates a theoretical framework of bond financing mechanism about China's local governments.From the path of bond financing of China's local governments,the paper analyzes that it is necessary of the bond way to regulate local governments financing,and points out that local governments bond financing should play positive effect on economic growth and be prevented from risks.Based on positive and negative effects,management should be further standardized to improve domestic bond financing mechanism in China.On the basis of improving domestic bond financing mechanism,it proposes to establish international bond financing mechanism of China's local governments.The analytical framework conforms to requirements of China's new era,and will complement debt theories of traditional western economics.2.Based on the trinity hypothesis,the influence of local government bond on economic growth is empirically tested.The trinity hypothesis consists of undertaking affairs,infrastructure investment and local officials performance.The paper empirically examines the above hypothesis with the latest balance of local government bonds by the spatial econometric.The conclusions are as follows:(1)There is significant spatial auto-correlation between local government bonds and economic growth,in which shows that each provincial government bond not only affects its economic growth,but also is interacted by the adjacent provinces' bond where exists spatial spillover effects.It forms different agglomeration regions in geographic distribution,which high value agglomeration regions of local government bonds are mostly undeveloped provinces in the west,and high value agglomeration regions of economic growth are mainly developed provinces along the Yangtze river.(2)In use of SLM and SEM model,the investigation shows that local government bond financing on the whole samples has a driving effect on economic growth,and there is obvious difference under sub-sample i.e.,local government bonds in high level provinces have negative inhibitory effects on economic growth,what in low level provinces are opposite.3.Based on EDF hypothesis,the default risks of local government bond in China empirically are tested using panel data model.Most qualitative researches on the default of local government debt are less quantitative.Disposable fiscal revenue of 30 local governments in 2010-2017 is predicted considering economic and credibility differences.The analysis of EDF model is used to assess the default risks of local government bonds in 2016 and 2017 with existing local government bonds incorporated into the local government repayment of principal and interest.Conclusions are drawn as follows:(1)Overall local government debts have basically no default risks in China,where more than 70 per cent of provincial governments have a default rate of less than 10 percent because central government attaches great importance to stock debt replacement and standardizing financing.(2)There is a positive trend,which provinces of default probability of less than 10%are up to 28 in 2017 from 22 in 2016,because local governments have also strengthened debt management.(3)Default risk of individual province debt is greater.The default probability of Guizhou and Qinghai is largest,and which of Heilongjiang and Yunnan also is not allowed to ignore.So central government should strengthen transfer payments of public goods to underdeveloped provinces to alleviate debt financing pressure of local governments.4.The idea of establishing international bond financing mechanism of China's local governments is proposed innovatively.Based on improving domestic bond financing mechanism of China's local governments with strengthening management,it attempts to build international bond financing mechanism.The research path is as follows:Firstly,the internal logic of international financing of local government bonds is discussed in the context of RMB internationalization strategy.Secondly,the paper presents several options for international financing market of local government bond by analytic hierarchy process(AHP).Thirdly,the paper puts forward the design of international distribution system from issuers,duration,varieties,interest rates,liquidities,and so on.Finally,it emphasizes the construction of international financing infrastructure.The idea of international financing mechanism considering local government bond from financial perspective,which is maybe innovative and forward-looking,broadens the views of most scholars from fiscal perspective.