Research On The Mode And Operation System Of China Municipal Bond

Local government debts in China, accompanied by historical, objective and institutional management features, has provided financial support for public service during the economic transition period and played a vital role in economic and social development. However, issues on oversized debt level and nonstandard forms of indebtedness have become a tremendous hidden potential peril to economic development of China. Under the background of new-type urbanization, discretionary bond issuing by local government has once more become a focus issue in financial academics. Nonetheless, current research approach is confined to study on patterns selection of municipal bond only based on point of view from urbanization and local capital market, but not from fiscal decentralization, which is a more fundamental point of view to analyze the necessity, pattern selection and risk management of municipal bond. This article has studied above issues attributed to fiscal decentralization, which is a remarkable innovation in both policy practice and basic theory. This article emphasizes the correlation between fiscal decentralization and patterns selection of municipal bond. Fiscal decentralization has a positive impact not only on the purpose of municipal financing, but also on many aspects of market structures, issuance way and risk management and so on. This article has made a comparison among Japan, America and France from institutions of fiscal decentralization and influence on financing patterns of local government. On the basis of above analysis, this article reviews the reform of fiscal decentralization in China and changes in financing patterns of local government debt issuance, drawing a conclusion on the trend of changes in financing patterns of local government debt issuance. Finally, this article analyzed the influence of China's fiscal decentralization features on municipal bond patterns selection, and has defined basic orientation, institutional framework and risk control measures of these patterns. Under the logical analysis, this article draws following main conclusions:(1) Fiscal decentralization is the foundation of municipal bond issuance.(2) Following the improvement in fiscal decentralization institution, local government bond issuance will move from a short term interim step to long term arrangement.(3) Municipal bond issuance patterns and operation mechanism are required to adapt to current fiscal decentralization institutions and steadily develops based on changes in the institutions.(4) The features of municipal bond issuance patterns and operation mechanism are as follows. At first, the central government should formulate the national municipal bond issuance plan and approve local government bond issuance. Next, there is a competitive relation, without transfer payment institution, among local governments, thus resulting in inadequacy of joint bond issuance in China. What is more, under the current condition of fiscal decentralization, only provincial governments in local governments have the rights to issue general obligation bonds, while other levels of local governments give priority to income bonds issuance. Finally, the projects of municipal administration can go bankrupt, but the government cannot, thus risk management of general obligation bonds should focus mainly on ex-ante risk warning. In addition, high degree of economic decentralization suggests that risk management of income bonds should rely mainly on ex-post bankruptcy constraint.