A Study On The Issue Of China 's Municipal Bonds From The Perspective Of The Linkage Mechanism Of Local Financial And Financial Risks

As important parts of national macroeconomic, fiscal and finance are closely connected to each other in economic activities. They were connected by the movement of capital, which also lead to the linkage mechanism of risks. Currently, the local government undertakes a huge debt burden, the bank-loan based financing not only can’t alleviate the pressure on local government debt, but also bundled the fiscal risk and financial risk together, exacerbating the linkage relationship of the two risks. Municipal bonds is the best way for local governments to open up a new financing channel, to relieve the pressure on local debt, and to deal with the increasing the financial requirement in the process of Urbanization. Therefore, under the affection of the global financial crisis and the European debt crisis, it is important to discuss the linkage mechanism between fiscal risk and financial risk when we study the municipal bond in China.Municipal bond has a history of 200 years in the United States and matured-developed in many other countries, it became a sophisticated instruments in finance. But in china, it is still a market to be developed. As a significant financial tool for local government, municipal bond not only can overcome the disadvantages of the bank-loan based financing channels, but also can weaken the linkage of fiscal risk and financial risk. However, it also remains the market risk, financial risk and credit risk which might influence the interlock of fiscal risk and financial risk, especially the credit risk, it is closely related to the issuance scale. There is a contradiction between the willing bond amount and the safety scale,owing to the huge pressure from the local government debt. Therefore, the effective control of issue size plays an important role in preventing the mutual transfer of fiscal risk and financial risk. In this paper, I used the related data from own-bonds pilot cities(e.g. shanghai, Jiangxi, Ningxia), and work out a preliminary estimation on the security issuing scale for these cities.Now China has recognized the importance of municipal bonds market, and carries out the pilot project step by step, but it is still have lots to do for the real municipal bond. Financial environment still remains a problem and yet there is potentiality for its perfection in the concrete operation model. In this paper, I proposed some suggestions on the issuance of municipal bond in China, and I believe the development of municipal bond market can be smoothly.