Research And Judgement On China’s Local Government Debt Risk With Management Suggestions

The local government debt issue, involving many subjects such as the public finance, institutional economics and risk management, is an important theme in finance research, which means it has great significance to investigate its formation mechanism. Meanwhile, along with the deepening reform of tax system and rapid development of urbanization, China’s local government debt is continuously expanding and complex in nature, threatening the safe operation of the local finance. Therefore, exploration into local government debts management and the risk-warning mechanism will help to promote the improvement of our government credit system and financial risk control, which could provide strong support for the steady advancement of the market economic system and the process of urbanization.According to the theory of fiscal decentralization and the benefit principle of public goods, it is reasonable and necessary for local governments to debt. However, in China’s currently situation, the local debt is facing numerous risk resulting from increasing amount, structural imbalances and inefficiency. These problems could be explained by a series of reasons:financial system’s lackness causes pressures on local governments expenditure. Institutional weaknesses of administration motives local officials to expand investment and expenditures. As the public sector, local governments are expected to undertake the ultimate responsibilities relating with macroeconomic performance, and consequently bear a substantial amount of passive liabilities. Worse to that, the non-standard management system exacerbates local government debt risk, showing as kinds of defects in debt’s investigation, operation as well as repaying.Therefore, it is necessary to construct a long-term mechanism for local government debt’s healthy development base on the disposion of debt stock. On one hand, reforms to ralating organizations are essential, including adjustments to the division of tax rights, performance evaluation and issuing municipal bond. On the other hand, establish a unfied and standard management symtem covering the entire existing period, through studying foreign local government debt management practices.