Research On The Legal System Of Local Government Bond In China

In the western developed countries, as a fundamental financial product and aninvestment and finance instrument, the local government bond has already come tomaturity. It promotes the local economy and guarantees the construction of the localinfrastructure. For the Budget Law forbids the local government from issuing debts inChina, the local government has no choice but to raise loans in disguised forms suchas issuing quasi-municipal bond to ease the fiscal crisis when facing a huge financialgap. Due to the absence of the legal supervision to the quasi-municipal bond, thisnonstandard way of raising loans is dissociated from the supervision of legislation toa great extent. It increases the financial risk of the local government and possiblycauses more serious fiscal crisis.In2008, because of the international financial crises, the economy of Chinaglided greatly. The revenues of the regional governments decreased a lot. To stimulatethe economy and ease the tight finance, the State Council decided that the Ministry ofFinance raises￥200billion as local government bonds instead of the localgovernments. It is a great event in the building of China’s bond market that the centralgovernment raises loans in place of the local government. It stimulates the economicgrowth, widens the financing channels and improves the management of thegovernment. Later, the Ministry of Finance issued2009Local Government BondsBudget Management Measures. However, many problems occurred during themanagement process of “the central treasury issues the bond on behalf of localgovernment”, respectively, issuers’ legal qualifications in doubt, the imperfection ofinformation disclosure system, the unitary of regulatory body as well as the lack ofsolvency system. An important reason why there are so many problems in the issuingbonds of the local governments is that there is not a complete legal system on thelocal government bonds. So the study on it is quite realistically meaningful.Regarding the problems in the issuance of local bonds, we should give the localgovernment the debt financing power under legislation. And we could draw on theadvanced experience of the developed countries such as the USA, Japan and Poland inthe legislation of local government bonds. Combining the experience with China’specific national conditions, we could build the local government bond legal systemfrom following aspects: to revise the relevant terms in Budget Law and GuaranteeLaw; to carry out strict examination and approval system; to build objective and just credit rating mechanism; to establish a multi-level regulatory system; to construct asinking fund system.