Research On Financial Risk In The Process Of Financial Support For New Urbanization From The Perspective Of Local Government Debt

During the 14 th “Five-Year Plan” period,the construction of new urbanization has embarked on a new journey in China.The “14th Five-Year Plan for National Economic and Social Development of the People’s Republic of China and the Outline of Vision 2035” and the “14th Five-Year Plan for New Urbanization Implementation Plan” has clearly emphasized that the quality of urbanization should be improved with deepening the people-centered approach to improve agricultural transfer population to achieve equal right of infrastructure and public service with aboriginal inhabitants.Therefore,China’s new urbanization is a people-centered urbanization,and its main goal is to realize the urbanization of agricultural transfer population,that is,the transfer population and urban population enjoy equal infrastructure and public services.The promotion of new urbanization has put forward higher standards and requirements for the existing urban infrastructure(hardware)carrying capacity and the supply of basic public services(software).The construction of new urbanization not only provides huge development opportunities,but also brings risks.The rapid development of new urbanization has increased the demand for public goods related to infrastructure and public services,and in the process of new urbanization,public investment expenditures related to the equalization of infrastructure and public services account for up to 80% of local fiscal expenditures.As the optimal supplier of local public goods,the local government is faced with the dilemma that fiscal revenue cannot cover the increasing demand for funds.Financial support is an important source to make up for the funding gap of infrastructure and public service-related construction projects.Faced with the huge funding gap for new urbanization construction,local governments have adopted the means of financialized debt financing relying on government credit to provide financial support for infrastructure and public service-related projects through the financial system.The financial support method of new urbanization has transformed from the traditional financing platform as a medium through commercial banks,land financing,urban investment bonds,shadow banking and other non-standard financial instruments to government bonds and PPP models.Because of local government bond limits,financial opportunism and financial illusion caused by multiple principal-agent relationships and soft budget constraints,local governments still use implicit guarantees to borrow money from financial system illegally.The percentage of PPP projects with repurchase is about 70%-80% in our country.No matter how the financial support model of new urbanization changes,the essence of financial support is the local governments’ borrowing money from financial institutions relayed on government credit though financial innovation and financial system by financial instruments.In the meanwhile,it aggravates the expansion of local government debt.Once the local government debt risk exposure,it is directly reflected as the financial risk of relevant financial institutions and financial markets,and evolves into the macro financial risk through financial system eventually.Judging from the existed research literature,there are few studies on the financial risk of financial support for new urbanization.The relevance between new urbanization,local government debt and financial risk are mostly researched independent and separated from each other.The quantity of journals in both aspects is rare.Therefore,this thesis considers and examines financial risks from the new perspective of financial support to new urbanization,and finds that local government debt expansion is the core of financial risk evolution in the process of financial support for new urbanization.Besides,local government debt expansion is also the gray rhino of financial risk currently,which is in line with the current macro era background of firmly defending the bottom line of no systemic financial risk.This thesis is divided into eight parts.The first part is the introduction.This part concludes the background,significance,research literature,research methods and structure,and the main contents and innovations of this thesis.The second part is the theoretical basis.This part defines the concepts of new urbanization,financial support,financial risk,and local government debt risk,and then sorts out the theoretical basis of financial support for new-type urbanization and financial risk used in this thesis.The third part is financial risk subjects and evolutionary logic in the process of financial support for new urbanization.This part takes the current situation of the necessity,object,subject,mechanism and mode of financial support to new urbanization as the breakthrough point,finds out the key factors that need financial support in the process of new urbanization.Based on the current financial support model for new urbanization,this paper puts forward the sources of government entities and market entities in aspect of financial risks in the process of financial support to new urbanization,and points out the financial risk evolutionary logic.Local government debt expansion is the core and connection point of financial risk evolution in the process of new urbanization.The fourth part is the analysis of the coupling mechanism of financial support to new urbanization and local government debt risk.This part sorts out the development process of local government debt in the process of urbanization and theoretically analyzes the formation mechanism of local government debt expansion in the process of new urbanization.Then the coupling mechanism of financial support to new urbanization and local government debt expansion is proposes and tested empirically through the fixed panel model.The fifth part is the analysis about mechanism of the evolution of local government debt expansion to financial risk in the process of new urbanization.This part proposes the evolution mechanism and risk transmission path from local government debt expansion to financial risk in the process of financial support to new urbanization,and constructs a GMM dynamic panel model to test the evolution mechanism of local government debt expansion to financial risk and test the intermediary effect of financial risk transmission between commercial bank carriers and real estate market.The sixth part is the financial risk measurement in the process of financial support to new urbanization.The scale of financial support is mainly based on the scale of local government which is formed by debt financing used in infrastructure and public service-related fields to promote the construction of new urbanization.For the local government debt formed to promoting the construction of new urbanization,the local government,as the main debtor of debt repayment,the KMV model is used to evaluate the financial risk in the process of financial support for the new urbanization process through the local government debt risk caused by the default of its debt.The seventh part is evaluation of policy effects dealing with financial risks in the process of new urbanization.This part focuses on the relevant policies to deal with financial risks in the new urbanization process based on the local government debt expansion as the key area.This paper conducts theoretical analysis and empirical test on the mechanism of financial risk,and then evaluates the policy effect of debt governance policies in responding financial risks in the process of new urbanization.The last part is the conclusion and policy recommendations.From the perspectives of local government debt management,fiscal and financial system reform,and cooperation between fiscal and financial departments,relevant policy suggestions are put forward to prevent financial risks in the process of financial support for new urbanization.Through the study of this article,the following conclusions can be drawn:firstly,the expansion of local government debt is a key point in the evolution of financial risks in the process of financial support for new urbanization.Local government debt will evolve into financial risks through traditional credit and shadow banking through the path of commercial banks,as well as through land financing through the path of the real estate market;secondly,the possibility of local government debt expansion evolving into financial risk in the current process of financial support to new urbanization is low and generally controllable,but it still needs supervising;thirdly,local government debt financing for public investment activities will have a “crowding out effect” on local financial resources.If the monetary policy is suddenly tightened,the local government may face a debt crisis due to the “crowding out effect” on investment,resulting in weakening fiscal revenue growth and increasing the possibility of local government debt and exposure to local government debt risk and causing the financial risk in process of urbanization;at last,the implicit debt governance policies can deal with the local government debt expansion,but the policy time effect is not obvious.Due to the soft budget constraint,the effect of implicit debt governance policies is not achieved overnight,and policy implementation needs to be sustained and persistent.The implementation of the policy needs to be sustained and insist on breaking the illusion of “financial bottom line” in order to resolve the main problem of local government debt expansion to cope with the financial risk in process of new urbanization.The innovations of this thesis are as follows: firstly,this thesis incorporated financial risk into the macro background of the new era of new urbanization systematically,which not only makes up for the lack of systematic research about financial risks in the process of new urbanization among current academic researches,but also proposes that according to the logic of “financial support to new urbanization-local government debt expansion-financial risk”,local government debt expansion is the fuse in the evolution of financial risk in the process of new urbanization;secondly,based on the theoretical and empirical study,this thesis raises the evolution mechanism and transmission path of financial risk in the process of financial support for new urbanization clearly,which provides theoretical support for research on financial risks in the process of new urbanization.In the process of financial support to new urbanization,the expansion of local government debt has accumulated debt risk,and non-financial sectors’ risk will ultimately be attributed to financial sector’s risk.The local government debt risk,which is an important part of the non-financial sector,will eventually evolve into financial risk through the traditional credit and shadow banking routes of commercial banks and the real estate market through land financing route;last but not the least,based on the fact that resolving local government debt expansion is the starting point for financial risk prevention in the process of financial support to new urbanization,this thesis not only overcomes the problem of lack of local government debt data,but also tests the effect of dealing with local government debt expansion from both micro-level implicit debt governance policy and macro-level fiscal and monetary policy,which fills the gap in the macro policy perspective of local government debt expansion governance in the existing research.