Local Government Bonds, Corporate Bonds Based On The Development Of Countermeasures

Local government bond is the bond which is issued by local government based on the credit of the local government. In China, because of the restriction of law, local government is not permitted to issue bond or provide guarantee for debt. With this restriction, local government has no choice but to get money for infrastructure construction through manners that are illegal and informal. These debts have huge volumes and increase rapidly. What is more, the central government has no clear picture about these debts but it has responsibility when there are debts under default. Under the fiscal decentralization, to solve this problem, central government should empower local governments with the right to issue bonds. However, this right has much difficulty to empower because of the political centralization in China. The author in this paper suggests that central government can develop local government bond market based on the existing enterprise bond. It will have many positive effects if central government manages to transfer enterprise bond to a special finance tool for local governments. The author discusses the necessity and feasibility of the transferring process. According to the experience in the development of US municipal bond market and Chinese capital market, the unique strategy of two-step development is proposed, the operation method to transform enterprise bonds to quasi-local government bonds under the framework of current political and legal systems is chiefly analyzed, and the risk undertaken and risk control methods to be taken in this way is indicated.