Legal Thinking On Several Issues Of Local Government Bonds In China

Local government bonds is a kind of important financial products on the bonds market, and also is a kind of financing instruments for local governments. It has become mature in many developed countries, which plays an important role in social infrastructure building and local economic development. However, The Budget Law of China has forbidden local governments to issue bonds except for special statutory condition, so local governments are unable to raise money by the issuance of bonds. But due to huge fiscal funding gap, the local governments have to find other ways such as "quasi local government bonds" to raise money to avoid a breach of the above law. Those practices without institutional constraints and social supervision could not relieve financial burden, but may trigger a greater financial risk.From2008to now, influenced by the global financial crisis and the drop of income from leasing state-owned lands, the local governments faced more and more fiscal difficulties. In2009, in order to relieve local governments’financial burden, with the approval of the State Council, the Ministry of Finance issued200billion-Yuan bonds for several local governments. In2011, approved by the State Council, Shanghai city, Zhejiang province, Shenzhen city and Guangdong province began to issue local government bonds on a trial basis. These operations are of great historical significance on the development of local governments bonds in China. However, there still some problems unsettled, such as whether those operations conflict with current law in China, and how to establish and improve the legal system of local government bonds.Based on China’s present national condition, in this thesis I analyze the current status of local government bonds in China and the existing problems. Then I discuss the issuance, repayment, and supervision system of local government bonds from legal aspect. Finally I come up with some legal suggestions of how to establish and perfect the legal system of local government bonds by using foreign countries’relevant experience as reference.There is four parts in this thesis as follow:In the first part, I firstly defined the main concepts of this thesis, and reviewed the history of local government bonds issuing in China, and then introduce the status of the issuance of local government bonds by the Ministry of Finance since2009and by some municipal and provincial governments since2011, and finally analyze the existing problems in these two kinds of issuing mode.In the second part, I discuss the current problems existing in the issuing system of local government bonds, including the obstacle of the legal qualification of issuing body, the unreasonable approval process, the unreasonable regulations on the use of bonds funds, etc. Based on our China’s regime and economic conditions, depending on the immediate and long-term goals, I put forward the legal advice such as perfecting the regulation on issuers, issuance approval and the limit of use of bonds funding.In the third part, I discuss the current problems existing in the repayment system of local government bonds, including over-simple repayment provisions, dislocation of the repayment principal, and the lack of specific repayment mechanism and so on. Through drawing lessons from foreign countries, I raise some ideas about the construction of funds for repayment of local government bonds and the bonds insurance mechanism.In the fourth part, I discuss the current problems existing in the supervision system of local government bonds, including insufficient supervision of the local National People’s Congress supervision, only one inner government regulators, the lack of market supervision mechanism, social institutions and the people not playing a monitoring role, etc. And from the aspect of authority supervision and social supervision, I put forward the promotion of a sound supervision system of the local National People’s Congress, supervision by government departments coordinately and the credit rating mechanism as perfecting suggestions.