Study On Local Government Bonds’ Risks In China

Chinese local government bonds issued by the ministry of finance agency since2009, one of the most important background is the significant increase of local government debt consolidation and cleaning up the local government financing platform, it’s also an important measure to face with the international financial crisis, to expand domestic demand development, to develop bond market and to spread the risk of bank. Local government bonds have a dual nature with emergency and exploring. Therefore, it’s necessary to balance financing function and the risk problems of local bond. There is no doubt that the development of local government bonds by the pros and cons, but the advantages far outweigh its disadvantages from the point of long-term economic development of local government, so the problem and the risk of exposure need to be solved in practice. From the perspective of local debt sales, product design, purchasing objects, using channels, supervision and management, the risk early warning and the guard, local government are endowed with right to issue bonds has a long way to go. As a financing tool in financial markets, No matter from the subjects of investment or financing, credit risk is one of the most important risks faced by local government bonds. Through the research of local government bond credit risk, Analyzing the source and causes of credit risk, through early warning and prevention. It is of great significance research the sustained and healthy development of the local government bonds of our country.The research object is the local government bonds that issued by the ministry of finance agent since2009through the combination of theory and empirical measure. First, the article reviews the historic local bonds. Summarize and analysis the present status of local government bond, characteristic and problems. Second, from two aspects to analysis its credit risk:qualitative and empirical analysis to analyze the credit risk of local government bonds. On the one hand, from the perspective of qualitative to analyze the credit risk of local government bond is objective existence, combined with practical situation in our country and economic environment. There are four sources of credit risk:efficiency and uses, economic and political environment, local government debt problem, untrue statistics. On the other hand, from the perspective of empirical to analyze of the credit risk, using the improved KMV model, through the example analysis of Shanghai local government bond to find the bonds default probability and reasonable scales. The conclusion is:First of all, in order to reduce the risk of default, government should control of the reasonable scales of local government bond, from the relationship between bonds scales and the ratio of bonds scales in the guarantee fiscal income. The greater the probability of the proportion, the greater the risk of default, it’s more possible to come up default risk. Finally, by summing up the development of local government debt and risk prevention experience in the developed countries and developing countries, the article puts forward reasonable precaution countermeasure against the policy Suggestions based on the above research of risk. Include the following aspects:Standardizing a perfect design of local government bond, setting up a perfect repayment guarantee mechanism and risk warning mechanism, building a perfect local government bond supervision mechanism.