Research On Indicators Of Credit Rating Of Local Government In China

Since 2008,the scale of implicit debt of local governments in China has been soaring.Currently,preventing and addressing the risk of local government debt has become an important task facing China.Among which,making the implicit debt explicit is one of the most important directions.In 2015,the newly revised Budget Law of the People's Republic of China has given provincial governments the authority to issue local government bonds.The issuance of various revenue bonds has also been started.It is imminent to standardize and set up a market-oriented mechanism of local governmental bond.However,due to the short development time of local government credit rating in China,the current rating system is not perfect and unreasonable,due to such factors as incompetent institutional mechanism,rating methods and information channels,and the rating results cannot play their due role in the market economy.The establishment of the rating indicator system is the precondition and foundation of the credit rating,while the research on this field is relatively few at present in China.Rating agencies,professionals and scholars are intended to build the local government credit rating indicator system only from the perspective of liquidity,and also due to the lack of the initial processing of the rating indicators,it is difficult to accurately reflect the overall local government credit risk.From the angle of preventing and addressing the debt risk of local governments,and based on the government debt risk and its measurement and credit risk model,this paper analyzes the relevant literatures of local government credit rating issued at home and abroad.Combined with the rating practice of major rating agerncies at home and abroad,it constructs the credit rating indicator system of provincial governments in China from five aspects,namely local economic development,fiscal capacity,debt situation,government governance and regional financial environment,and adopts entropy method to grade the credit status of provincial governments in China.On the basis of this,this paper compares the credit status between provinces in China,and finds that the local government credit shows the trend of decreasing in the east,middle and west regions,and it bears the characteristics of high credit aggregation and low credit aggregation.At the end of the paper,according to the difficulties and problems faced by local government credit rating and the application of the rating results,four suggestions are put forward,which are aimed at standardizing the development of local government bond market,perfecting the information disclosure system of local government,perfecting the local government rating system and promoting the application of credit rating results of local government.In the process of constructing the indicator system of local government credit rating,this paper introduces the fluctuation of tax revenue and uses DSGE model to quantify it to generate the financial fragility indicator.Based on existing studies,data of local governments' fiscal revenue and expenditure etc.this paper calculates the financial solvency indicator.Considering the actual situation of our country,the paper constructs the rating indicator system which is also applicable to our provincial government general obligation bond.Local government credit rating is a relatively new subject in China.Both theoretical research and rating practice are still relatively weak,which reflects the research value and significance of the paper,but also increases the writing difficulty of the paper.The innovation points of the paper are mainly embodied in the following three aspects.The first is to construct a local government credit rating indicator system,which is different from the traditional local government credit rating indicator system.At present,the construction of the local government credit rating indicator system is basically started from the liquidity of the local government under the defined environment,and it lacks the analysis on the fiscal revenue and expenditure behavior of the local government under the impact of the uncertain exogenous environment.This paper introduces the financial fragility indicator and processes it in a quantitative way and constructs a more reasonable credit rating indicator system from the liquidity and stability.The second is to introduce and construct the financial fragility indicator creatively.Based on the differences of tax structure in different provinces,this paper uses DSGE model to simulate the economic structure and development of local government and to measure the fluctuation of tax revenue caused by different exogenous shocks such as technology,consumption and investment,which is used as the indicator of fiscal fragility.This not only introduces a new indicator to the current theory and practice of local government credit rating,but also a theoretical exploration of dynamic evaluation of local government credit risk.The third is to provide a new way of thinking for the selection of local government credit rating indicators.The quantitative rating indicators in the existing rating methods generally correspond directly to the economic and financial data published by local governments.Based on the existing studies,this paper calculates the financial solvency indicator of provincial governments in China,and the empirical analysis shows that this indicator has a significant impact on local government credit.This provides a new idea for the selection of local government credit rating indicators,that is,combining with economic system and financial characteristics,the original data is refined to form a rating indicator,so that the rating indicator can better reflect the real credit level of local government.This is also an important research direction in the future.