China 's Local Government Debt Risk And Its Control

In2013and2014, local government debt is running into centralized payment and facing the risk of concentrated outbreak. Local government’sfinancial risks affect the development of local financial sustainability and stability of economic and social. Research onthe risk of local government debtis meaningful and of practical value.In general, local government repays the debt with financial revenues, while financial revenues and GDP are closely related, and thus the international customary GDP to measure the degree of risk of government debt. That local government debt risk is often used to measure the flow concept, but not enough to fully explain the risk exposure of the debt in real terms.This paper attempts from the perspective of asset and liability management (ALM) to measure the risks of local government debt. Application in the public sector asset-liability management approach implies:the number and structure should enable mutual matching of assets and liabilities, or that liability should be assets to provide safeguards to avoid the risks of macroeconomic and financial risks faced by the government to prevent compensation even insolvent debt crisis situation, in order to ensure long-term fiscal sustainability.First,we study on local government’s balance sheet--assets and liabilities. Then in accordance with the gearing levels of local government,we estimate the level of local debt risk from all provinces. In this paper, according to estimates, in2012, the local government’s asset size is aboutCNY25.4trillion, of which the local government-owned state assets is CNY14.93trillion, land reserves is about CNY7.76trillion, and local financial deposits is CNY2.73trillion. And by the end of2012, government debt of China’s local governments was CNY9.6trillion. Chinese local government balance sheet crisis was in control. Finally, the conclusions are:1、China’s local government debt risk is high, but this is mainly due to high liquidity risk. The asset-liability ratio is within the safe range. In other words, our balance sheet crisis does not appear, but we have to guard against liquidity risks of local government debt.2、It can be seen from the results of this paper, most high-risk provinces from the relatively less economically developed central and western regions, and local debt risk of economically developed eastern coastal areas in the traditional sense, such as Jiangsu, Zhejiang, Guangdong and so is not large. For example,five provinces, Guizhou, Sichuan, Inner Mongolia, Yunnanand Jilin Province, are in the high-risk areas, of which four provinces from the west areas. And11provinces are in the areasof low-risk, including eight from the eastern region.3、The long-term financial risk of Chinese local government’sabsolutely cannot be ignored. China’s local government debt is growing rapidly.According to audit disclosure of national local government,from1997to2010,thegrowth rates of China’s local governmentdebt were more than18.86%, and the highest reached61.92%. If not be controlled well, in accordance with this rate of development, Chinese government-debt risks need to be vigilant.