The Research On The Legal Control And Prevention Of The Default Risk Of The Local Government Debt

Local government debt is the local government as a debtor in accordance withthe agreement or contract, to assume the payment obligations of the funds to thecreditors in accordance with the provisions of the law. China’s rapid expansion of thescale of local government debt in recent years, the number of the company of localgovernment financing platform are too many, not standardized, the problems are veryprominent, and breach of contract will produce many adverse effects on the localpolitical, economic, financial, etc. Recommendations from a legal perspective, thereare many difficulties of the risk of default prevention and control of localgovernments in China, but also has some favorable factors, combined with foreignexperience can provide a viable of proposals of legal prevention and control of localgovernment debt default risks. This paper is divided in four parts, in particular:The first part is an overview of local government debt default. Local governmentdebt is the local governments to meet their functional needs, blend funds through theestablishment of investment and financing platform companies, and the debt producedby local government debt as a potential repayment or guarantee. The main factors thatprompted China’s local government defaulting on its debt the government is blindinvestment, security expenditure unreasonable and lack of social legal regulation. Theincrease of the risk of default of local government will cause a series of adverseconsequences, such as the increase of the fiscal burden of government, the generationof the bubble economy, the decline in the Government’s credit rating and affect socialharmony and stability.The second part is the feasibility of legal prevention and control of localgovernment debt default risk. This part is mainly discussed the relevant experiencefrom abroad, and the favorable factors from domestic. Debt monitoring system of theEU member states and the local bond system of U.S., Japanese may be an effectiveway of local government debt management, the California fiscal crisis providedconsiderable warning for our country. Our unitary national structure, support of localgovernment debt management experience and the strong macro-control capacity of Country, is a favorable factor to prevent debt default risk of the local government.The third part, the legal difficulties of the control of local government debtdefault risk prevention. The legal difficulties to prevent local government debt defaultrisks in China are: the absence of relevant legal norms, conflicts between the existinglaw, the imperfect tax system. In addition, the lag of the debt monitoring mechanism,the absence of debt early warning mechanism as well as the unreasonabledebt-guarantee mechanism are legal difficulties to prevent local government debtdefault risks.The fourth part, the countermeasures to improve the prevention and controlmechanisms of local government debt default risk in legal. First, we must reform theexisting local government debt management system. To efforts to change the law,improve the tax system, development the law of local government debt management,the establishment of local bond system, and the establishment the regulatory agenciesof a unified local government. Secondly, we must improve the local government debtdefault risk monitoring and early warning mechanisms, and local government debtdefault a strict warning mechanism and timely response in crisis. Third, we mustestablish a reasonable local government debt guarantees system, the reform thenon-compliance, not legal of the existing local government debt guarantees, to reducethe losses caused by the local government debt default risks. Finally, to improve theeffective local government debt repayment mechanism, to efforts in servicing body,debt service funding sources and debt repayment plan to ensure that local governmentdebt to fulfill on schedule, to reduce their risk of default probability.