Exploration On The Local Government Bonds Issued By The Local Government Independently

Local government bonds have existed for a long time, it showed up nearly one hundred years ago in Western. Local government bonds is called that the securities issued by the local government based on its credit to expand its investment capacity to provide all kinds of public goods. It is important for the local government. But in China, The Budget Act has forbidden the local government to issue local government bonds from1994. Owning to the current Finance and Tax System in China, based on the fact that public finance expenditure is much bigger than fiscal revenue, the local government has to issue some kinds of debt to burden the local government expenditure. Firstly in1998, the central government allowed the existence of local debt through the sign of the loan contract between the central government and the local government. Secondly in2002, the Quasi-municipal Bond showed up. It’s featured a financial innovative as a financing method to avoid the limitation of related Law. Thirdly in2009, the State Council agreed to the Ministry of Finance to issue2000billion Yuan of local government bonds. But it’s challengeable for the central government to supervise these local government debts. However many related provisions such as The Notice of Good Control in Local Government Bonds Work were drawn up, it is obviously illegal for that the local government debt is still forbidden by the Budget Law. One the one hand, its existence bases on lots of theories about local government bonds and reasonable necessity. On the other hand, it’s helpful for dredging the risk of the local government debt. Exploration on the local government bonds issued by the local government independently means a lot.This paper includes five parts to discuss the issue of the local government bonds by local government independently.The first chapter is talking about the introduction about the backgrounds and significance of the paper as well as the innovation point and shortcomings. It also includes the framework. Actually in1986, the local government bond showed up first time in China. It is issued by the Fujian government for constructing the bridge named Gaoji Channel Bridge. It is very typical. Lately there are kinds of local government bonds were issued. Owning to the lack of necessary supervision, the big parts caused big risk. The central government chose to forbid the issue of the local government bonds. In fact, the central government and the local government are searching for proper way to burden government debt all the time.The second chapter introduces us five kinks of theory about the local government bonds and the significance. For example, the theory of the functions of government division, points out that local government is important and reasonable from its efficiency. As the local government has its inherent expenditure, at the same time it must has property rights, including the right to issue local government bonds. It needs the economic and constructive expenditure for its motion to develop, and the administrative expenditure for a large number of office expenses, personal expenses to maintain the normal operation of the system. Also the local government has the liability to provide public goods as the requirements of the local people, such as compulsory education, rural health care, social security, local infrastructure, natural resources and environmental protection and so on.The third chapter is mainly about the local government bonds in America, including its original and development and the relative systems. Comparison with the local government bonds in China, it is much luckier. In1812, the New York government issued the first local government bond to constructive the Erie Canal. It made a miracle. Then it developed swiftly but not always smoothly at all. It promote to create some systems to supervise the local government bonds, such as the sound regulatory system, regulated issue system, the credit rating system, the security insurance system and so on.The fourth chapter outlines the history of the "local government bond" in China. In1988, the loan between the central government and the local government replaced the local government bond and resolved the shortage of funds of the local government. In2009, the Ministry of Finance issued the local government bonds for the local government. In2011, the local government could choose the underwriters and charged in part of the issue work. The local government gets more autonomy to issue the local government bonds. The fifth chapter mainly solves the problem about the issue of local government bonds in China. Based on the pilot issue in2011, learn from America, and we could develop some supporting policies about the local government bonds. Firstly we should clean up the implicit debt of the local government to make sure that the local government has the capability to issue securities and repay debts. Secondly, we could create regular issue system to ensure a healthy environment for the bonds. Last some other relative systems are needed too.This paper contains four innovation points:Firstly based on the pilot issue, this paper has a new perspective. It shows the the central government’s attitude toward the local government bonds. Also it tells us the reflection of the market and prepares for the issue by local government itself.Secondly this paper sets out several kinds of theory about the local government bonds. It may be more comprehensive. Take an example, it contains the western government bonds, public goods theory and so on.Thirdly it combs the history of the local government bonds in China very clearly. After the Budget Act, the history could be cut into three parts. It introduces the background, significance, process, relative policies and some other information about every part.Fourthly we give five relative policies to create the local government bonds system as following:to clear up the local government implicit debts, and good supervision over the investment and financing platform; to improve the tax system and system of transfer payments; to amend the Budget Law and National debt Law, try to establish local bond law; to establish a standard issue system to make a healthy environment for local bonds; to improve financial transparency degree and build the information disclosure system.Besides owning to the lack of knowledge and limited time, there are still some points need to be studied, such as bankruptcy system and early warning mechanism and so on.