Research On The Local Government Debt Risks In China

The expansion of local government debt is an unavoidable problem in the process of economic development transformation,and the potential risk of local government debt is an important part of Chinese fiscal risk and financial risk.If the local government debt cannot be properly handled,it will inevitably lead to serious consequences.After the publication of the New Budget Law,under the combined effect of the financial system with "centralization of financial power and decentralization of administrative power" and the GDP(Gross Domestic Product)-oriented promotion mechanism of local officials,it is difficult for the financial budget to meet the demand of infrastructure construction.The local governments mostly finance through local government bonds,local financing platforms and PPP(public private partnership)projects.Based on this,the State Council issued the Opinions on Strengthening the Management of the Local Government Debt in September 2014,which explicitly set out the principle that the local governments borrow and repay from themselves and the central government does not bail them out.The report at the 19th National Congress of the Communist Party of China established financial security as one of the strategies for overall national security,and emphasized again the prevention and control of financial risks at the 2018 Central Economic Work Conference.The importance of managing the risk of local government debt was emphasized again in the Report on the Work of the Government in 2019 and 2020.However,under the serious negative externalities caused by the bankruptcy of the local governments in China,it is difficult to implement the central government's no bailout principle and the principle of the separation of local government and enterprise.There are many factors affecting the risk of local government debt,and the real estate price is an important factor.Although the selling prices of real estate have been rising in recent years,real estate companies and real estate-related loans are not optimistic,which limits the real estate prices.Specifically,at present,in the special period of Chinese economy from rapid growth to high quality development,the debt ratio of real estate enterprises has been increasing year by year,reaching 79.1%in 2018.At the same time,real estate loans also account for a large proportion of all loans of financial institutions in China.In 2018,the loans to the real estate industry accounted for 41.59%of the loans of the four major in China,39.9%of the RMB loan increment of financial institutions in the same period.Under the background of the GDP-oriented promotion mechanism of local officials and the rigidity of local fiscal expenditure,local officials show strong demand for political performance and obvious motivation for GDP performance,which greatly improves the motivation of infrastructure construction and urbanization construction.The real estate industry and local government debt financing are the two main forces of infrastructure construction and urbanization construction,which are strongly correlated.There are many related industries in the upstream and downstream of the real estate industry,which directly affect the implementation of local governments'decisions on infrastructure construction and land.The infrastructure construction and land related incomes are the main investment and the source of local government debt.At the same time,the continuous implementation of replacing business tax with value-added tax and the local government's financial rigid expenditure lead to the expansion of the scale of local government debt and the rising risk of local government debt.Therefore,the fluctuation of the real estate price is bound to affect the risk of local government debt.Based on the above analysis,it is of theoretical and practical significance to use real estate prices to study the risk of local governments' debt in China.Based on the analysis of the current situation of local government debt and real estate market,this paper studies the risk of local government debt.Firstly,based on the explicit debt and the implicit debt,this paper constructs the index system of the local government debt risk,and measures the comprehensive index of the local government debt risk by using the global entropy method,and then analyzes the characteristics of the local government debt risk from two dimensions of time and space.Secondly,based on the spatial panel Durbin model,the influence of housing price on the local government debt risk and its transmission mechanism are studied.Finally,based on the computable general equilibrium model,Chinese macro data and input-output data in 2017 are used to set different scenarios of housing price decline to explore the impact of falling real estate prices on the local government debt risk.Specifically,the main contents and conclusions of this paper are as follows:(1)Starting from the definition of the local government debt and its risk,this paper sorts out the development of the local government debt,and analyzes the scale of the local government debt in China and its relationship with economic development,and describes the current status of the real estate market.It is found that in the aspect of the explicit debt,municipal and county-level local governments account for the largest proportion,which is mainly invested in infrastructure construction and public welfare projects.Local government bonds are the main source of funds,and the proportion of local government bonds in the form of borrowing the new to repay the old is increased.The explicit debt risk has significant regional differences.The more developed the economy,the larger the debt scale and the smaller the debt ratio.In the aspect of the implicit debt,local financing platform is its main source of funding.By region,the balance of urban investment debt of Jiangsu provinces is much higher than that of other provinces,but its debt ratio is not much different from that of other provinces.The debt ratio and debt balance are relatively low in the northeast and the northwest.The relationship of the local government debt's scale is inversely U-shaped with per capita GDP and population urbanization,negatively correlated with the secondary industry,and positively correlated with the tertiary industry and land urbanization.The proportion of the real estate industry in social and economic development is on the rise,and the proportion of real estate loans in all loans of financial institutions in China is also relatively large,and the debt ratio of real estate enterprises is increasing year by year.(2)This paper constructs an index system of the local government debt risk including explicit debt and implicit debt.The global entropy method is used to measure the comprehensive index of local government debt risk of 282 cities in China from 2015 to 2018.Furthermore,descriptive statistical method,Moran index and Theil index are used to analyze the characteristics of the local government debt risk in China from two dimensions of time and space.The results show that,in the evolution of time sequence,the local government debt risk is rising volatility as the explicit debt risk is on the decline and the implicit debt risk is on the rise.In terms of spatial distribution,the risk of local government debt in China has a strong spatial correlation.The explicit debt risk is higher in less developed regions and lower in developed regions.The implicit debt risk of developed and underdeveloped areas is low,while that of fast-growing regions is higher.Both the explicit debt risk and the implicit debt risk are higher in the southwest comprehensive economic zone.In terms of spatial correlation,the risks of local government debt,explicit debt and implicit debt all have significant positive spatial correlation.The areas with low-low clustering pattern of explicit debt risk are increasing,while areas with high-high clustering pattern are decreasing.The areas with high-high mode of implicit debt risk spread from the southwest to the eastern coastal areas,while the other areas showed the characteristics of low-low and high-low agglomeration patterns.In terms of spatial differentiation,the inter-regional difference of the local government debt risk is smaller than the intra-regional difference but the gap between the two is decreasing.(3)Based on the spatial panel Durbin model,this paper empirically tests the effect of the real estate price on local government debt risk and its mediating effect and regulating effect.It is found that there is a negative correlation between the real estate price and local government debt risk.The effect of the real estate price on local government debt risk is more significant in the eastern region than in the central and western regions and the economic development indicators have a less significant or insignificant effect on local government debt risk in the eastern region,while the central and western regions are just the opposite.From the perspective of the transmission mechanism of the real estate price on local government debt risk,the real estate price inhibits local government debt risk through two paths:land dependence and land urbanization.In the process of real estate prices affecting local government debt risk,local fiscal revenue,fiscal decentralization,fiscal pressures,population urbanization rate and per capita disposable income of urban residents all promote the impact of the real estate price on local government debt risk,while the income of higher authorities' transfer payment weakens the impact.(4)According to Chinese macro data and the input-output table data in 2017,macro and micro SAM(Social Accounting Matrix)tables are prepared by "top-down" method.On the basis of traditional CGE(Computable General Equilibrium)model,land capital is introduced and government departments are divided into the central government and the local government for independent accounting.Under this framework,different scenarios of housing price decline are set to simulate the impact of housing price decline on local government debt risk.According to the research,when the real estate price drops a little,the fiscal revenue will be affected,but the local governments are reluctant to sell land,which will reduce the land dependence slightly.As the decline in the real estate price increases,the decline of the local fiscal revenue accelerates,and the financial pressure increases further.As a result,the local governments have to increase the land dependence and increase the local government debt to alleviate the decline in fiscal revenue,and the risk of local government debt further increases.The innovation of this paper is mainly reflected in the following three aspects:(1)From the level of prefecture,this paper constructs a risk evaluation index system of Chinese local government debt including the explicit debt and the implicit debt.In terms of the construction of local government debt risk indicators,some literatures only measure the local government debt risk from a single index.In the literature measured by multi-index system,there are some shortcomings such as amplifying the effects of economy,resources and other macroeconomic factors,which lead to inaccurate measurement results.At the same time,the explicit debt data of prefecture level and city level is difficult to obtain,and there are few literatures on the local government debt risk including explicit debt based on the prefecture level and city level.Therefore,this paper starts from the debt itself,eliminates some weak macro factors,and constructs a multi-index system including explicit debt risk indicators and implicit debt risk indicators from the level of prefecture level cities,so as to measure the debt risk of local governments accurately.(2)The spatial panel Durbin model is used to study the effect of the real estate price on the local government debt risk and its intermediary mechanism and adjustment mechanism.At present,most literatures studied the local government debt and its risks by using the ordinary panel and its derivative model.The transmission mechanism between the real estate price and the local government debt risk are studied from the perspective of land dependence.However,there is a significant spatial correlation between the local government debt and its risk,and the influence of spatial factors will be ignored by just using the ordinary panel model.In addition,the relationship between the real estate price and the local government debt risk are also affected by the financial system,the urbanization and other factors.Therefore,this paper adopts the space panel Durbin model to study the impact of the real estate price on the local government debt risk,and studies its intermediary mechanism and regulation mechanism from multiple perspectives.(3)On the basis of the existing research,the influence of real estate price decline on the risk of local government debt is further analyzed.The existing literatures only studied the impact of the real estate price decline on the macro economy,without considering the important factor of land,and not subdivided the central government and local government to conduct targeted research.Therefore,this paper uses the computable general equilibrium model to put the land into the social production as the state-owned capital,divides the government departments into the central government and the local government for independent accounting.It also studies the impact of the real estate prices decline on the local government and resident's income,and further simulates the impact of real estate price decline on the local government debt risk through stress test.