Prevention And Early Warning On Local Government Debt Risk In Our Country

During three decades of reform and opening up, national economy and infrastructureconstruction has developed rapidly in our country, economic growth and social developmentmust have a capital investment as a guarantee. Today, however, each local government’sfinancial resources are relatively scarce, the government budget is difficult to providesufficient funds for economic development. Therefore, the final result of industrialization andurbanization, will lead to increased financing needs of the local constructive.Our country executed tax-sharing system in1994, central and local re-defined financialpowers and responsibilities, forming the unreasonable pattern of “money in the central,things at the local”. In2003, local government has begun to raise money through thefinancing platform, with land transfer income as a guarantee. In order to response to thesubprime mortgage crisis, our country introduced a4trillion investment plan in2008,matching financial incentive mechanism, the local government financing platformaccumulated massive debt in the next two years. But “Budget law” and other laws stipulateclearly that the local government is not allowed finance through debt directly and indirectly,so the huge scale of the local government debt is hidden in order to circumvent the legalrestrictions. Although there are four provinces and cities have started issuing bonds pilot atthis stage in our country, it will still take some time to make the debt information completelyopen and transparent. China began to implement sound economic policies to curb inflation in2011, however, the policy shift did not make our local government debt situation reverse, ourlocal debt was always staying at a high level, as a result, the resulting risk has shown initially.Therefore, it is imminent to manage and control the risk of local government debt, and ensuresocio-economic development is better, faster, healthy and stable. The practice proves that it isan important part to establish early-warning system so as to dissolve local government debtrisk and avoid the outbreak of debt crisis.This paper aims to conclude foreign experiences and lessons of local government debtmanagement, analysis of the status and problems of our local government debt, constructFNN Early-Earning Model and verify its feasibility, then put forward countermeasures toprevent our local government debt risk.