Local Government Bond Finance: Mode And Regulation

In2009, China successfully coped with the international financial crisis, duringthat time,the infrastructure investment driven by local government financing platformhas played a positive role, but it cause the local government debt burden increaserapidly. By the end of2010, the audit by the Audit Commission, the local governmentdebt totaled10.7trillion yuan. This paper holds that the way to ease the local financialpressure is to issue local government bond, it can also solve the difficulties of localinfrastructure and public utilities construction funds to ease the pressure of the centralgovernment’s macro-control.Through studies the local government bonds related basic theory and literaturereading. The paper longitudinally comb the development course of local governmentbond financing and horizontally compare to the foreign local government bondexperience, on this basis demonstrates the necessity and feasibility of issuing localgovernment bonds. This article summarizes the bond financing model: central agentissue mode, platform agent issue mode, self-distribute model, autonomous mode. Thispaper argues that at this stage our country can take administrative means to controltheir own issue mode, extended nationwide through pilot issue from the point to thesurface, and when conditions are ripe and then transfer from self-distribute model intoautonomous mode. The paper propose a set of institutional arrangement suitable forChina’s national conditions of the local government bond market about thedistribution system, pricing system, circulation system, the reimbursement system andregulatory regime. Based on the option ideas improve the KMV model to measure thecredit risk of municipal bonds, according to the local fiscal revenue calculate thetheory of the theoretical probability of default and security issuance size.This paper belongs to local government bond applied theoretical study, thecombination of qualitative and quantitative analysis makes this article has strong practical significance, and it provides important reference to the local governmentbond financing, ease local financial pressure and prevent local finance risk.