Studies On Urban Construction Investment Company Bond

After the revenue-sharing reform in1994, Chinese local government’s governance andthe property rights are not equal. Along with the urbanization sped up, local government’slimited revenue can not meet the need of construction. But in China, local governments canneither borrow from financial institutions nor issue bonds directly, so the local governmentsinnovatively built some financing platforms (Urban Construction Investment Company,"UCIC") for raising funds for infrastructure construction and other welfare facilities. Thecorporate bond issued by such financing platform is called UCIC bond, which is studied inthis paper.Essentially,UCIC bond is Chinese municipal bond because it is issued bygovernment-controlled corporate. UCIC bond has the characteristics of corporatebonds,municipal bond and high-yield bond.As the issuance of UCIC bonds has skyrocketedfrom2008, default risk of UCIC bonds is coming to public concern.Under this background,In the paper first there is the general summary of currentmunicipal bond theory and research at home and abroad.Then on the basis of summarizing upthe classification of local government debt and local government debt risk management theory,there is the brief analysis of municipal bond credit risk. Second,on the basis of summarizingup the overseas development experience of municipal bond market,the author thinks thatChinese government should further standardize local government’s governance and theproperty rights and strictly enforce our monitoring systems.Third,after introducing andcommenting on the KMV credit risk measurement and management mode, in combination ofKMV mechanism principle and research of domestic scholars, the paper applies the modelbased on KMV model to measuring municipal bond credit risk. By using the model tomeasure municipal bond credit risk of Shandong Provinces, this paper evaluates the ExpectedDefault Frequency and theoretical safety issuing amount of Shandong’s municipal bond, sothat their municipal bond credit risk is controlled below the safety line. At last,aftercombining the positive analysis with previous theoretical research analysis,the paper putsforward the policy suggestion of controlling the credit risk in the process of municipal bondmarket, providing new policy perspective of issuing municipal bond and controlling its creditrisk for local government.