The Mode Selection And System Design Of Local Government Bond Issue Under Current Conditions In China

Since2009, acting on behalf of local government, the Ministry of Finance has issued local government bonds for three years. In2011, the State Council approved that Shanghai, Zhejiang, Guangdong and Shenzhen could be allowed to issue bonds as pilot projects. In2012, the four local governments are going to issue bonds and the total scale of local government bond will amount to two hundred and fifty billion from two hundred billion in the past three years. Local government bond is a legitimate and normative financing method for the governments. Since then, mode selection and system design for the future local government bond issue have become hot issues in the theoretical circle and relative management departments. In this paper, the author firstly expounds the basic concept of local government bonds through normative analysis, and analyzes, both in theory and reality, the necessity of developing them for our country. Moreover, using inductive method by time, the author reviews systematically the history of local government bond issue in China and puts forward the differences in mode selection and system design of local government bond in different stages. Then, using comparative method among countries, the author draws on the experiences of American and Japan. Finally, the author proposes some advices for the mode selection, system design and supporting measures to issue local government bond.Local government bond refers to a bond issued to the public by the local government or its authorized agencies with the obligations of debt service, the development of which means a lot to the theoretical development and the reality. In theory, some local public goods should be provided by the local government for the purpose of improving the efficiency of resource allocation, and as for the capital items with large initial investment and long payback periods, local government bonds should be adopted for intergeneration fairness and efficient use of the society funds. In reality, issuance of local government bonds can resolve the contradiction between the great capital demands resulted from the rapid development of urbanization and the local financial difficulties in our country. Meanwhile, it can avoid the fiscal risks and financial risks brought about by other non-standard methods such as local financing platforms.The history of local government bonds in China can be traced back to the early days after the PRC was founded when the Northeast People’s Government issued government bonds for production and construction in the northeast of China and local government bonds for economic development. However, the development of local government bonds didn’t last for long because of the national policy control over the government debts. Since1981when China restarted to issue treasury bonds, the central government has forbidden local government bonds and enacted the Budget Law of the People’s Republic of China in1994to prohibit the issuance of local government bonds. Actually, local governments have raised a lot of money by lending capital from the nation through treasury bonds, taking local financing platforms, or through bonds issued by the Ministry of Finance acting on behalf local government or the local governments themselves issued bonds as pilot projects during these twenty years. Through comparison and analysis, it can be seen that all these mode selection and system design have conformed to the trend of the times and the development principles of local government bonds.America and Japan is relatively mature in local government bonds issue, but they are different in mode selection and system design since they are different in political system, historical conditions and development of local security market. Learning from the experience of those two countries and considering our national conditions, this paper puts forward that in China revenue bond should be issued as a priority and general-obligation bond should be promoted in preferred pilot areas. Meanwhile, normative bond management system should be set up step by step, and supporting measures should be improved. To sum up, mode and system for the development of local government bonds cannot be set up overnight. It takes time and practice to select and design them.