Feasibility And Scale Analysis Of Local Bonds In China

Our country prohibited issuing local governments bonds (short for local bonds) with "Budget law" from1994. But alone with the tax-sharing reform, coupled with local governments in the context of building a harmonious society, local governments have more responsibility and less finance income and its fiscal deficit pressure gradually increased. The proactive fiscal policy has been carried out, which leads local governments to a rough situation. As a result, the central government issued400billion bonds for local governments from2009, but this is a temporary choice under the financial crisis, not a long-term strategy for local financial.Local governments can issue bonds by themselves is the inherent requirement of the market economy. In the issuance process, the circulation is the initial problem and the direct risk to the local finical security, so controlling the scale of local bonds is more effective and meaningful. Moderate local bonds, which can effectively prevent financial risk, increase local government’s credit, and promote local economic and social construction.In order to open the local bonds market in our country, this paper will first analysis the reality of the need for local bonds, then learn the foreign experience, and discuss the feasibility of local bonds from the theoretical and actual, the last amend the relevant laws to allow issuing local bonds. The modest scale of local bonds is the first important issue, taking into account the synergies between provinces; this paper uses the panel data to analysis and calculates the appropriate provincial bonds. In addition, this paper also uses the cost-benefit method to calculate the suitable bonds of Liaoning Province. Based on quantitative analysis, combined results of the original theory, this paper puts forward policy recommendations to control the size of local bonds.