A Research On Local Treasury Bonds Market Of China

Local governmental bonds are the bonds issued by local governments with income or their subsidiary organizations, using tax revenue to pay off the principal and interest. Mainly used for transportational, educational, medical, or environmental infrastructural projects. Usually categorized into two types, one called normal bonds, the other called specialized bonds, or income bonds. Local governmental bonds originated from the United States, and after more than180years of development, have become an important investment tool for the American local governments. Local governmental bond plays a fundamental role in solving budgetary shortage, raising supply power, and controlling economic operations.Due to limitations by the Budget Law, Chinese local governments have invented a replaceable investment strategy, namely using its subsidiary organizations to issue city bonds. It must be said that as an adjustment within the disciplinary framework, the so called "quasi-govemment bond market" city bonds has always taken on the responsibility of the governmental bond, effectively solving many of the problems that the local government confronts, while the bonds themselves are developing at a rapid pace. However, since2010, city bond breaching events have bursted in rapid successions, attracting much attention to the problems of the city bonds. As a result, there was increased attention on the exposed problems of city bonds, standardizing the city bonds’development for the reform of mechanism of local government’s investment and financing, deepening the significance of local political achievements. In2009the Ministry of Finance began to issue local government bonds and including them in the provincial budgets. This is a huge step in China’s policy towards the issuing of local governmental bonds, as well as an important way for the central government to resolve the problems of local governmental debts.From the system of the issuing, the solution appears to be a transitional measure; this makes local governments encounter many problems in its initial stages of the bond issuing, such as scale being too small, interest being too low, duration being too short, and so on. Investors are not familiar with this new phenomenon either.As such, China still needs to improve the issuing of local governmental bonds. While investigating its necessity and feasibility, China should amply refer to the more advanced models found abroad. Contextualized in the backgrounds, present conditions and problems of China’s local governmental bond issuing, this essay seeks to project a possible future model for the bond issuing system.