| Local government bonds are originated in 19 th century America, and have been used by more and more countries to provide funds for urban infrastructure construction, and China is also actively trying to develop it. Although local government bonds in China have just started, and only tested in pilot areas, but with the rapid pace of our urbanization and the rapid development of our economy, local government bonds would be the financing for local government in our country in the future. But the lessons of so many times economic crisis over the world tell us that we have to remain calm and sober: Risk is everywhere, even the bond is issued by local government, there also are many risks, so in order to build a healthy local government bond market, we have to reduce the possibilities of the risks occurring from the source when we are agree to develop local government bonds. Based on the analysis of the general risks and specific risks of local government bonds, with the successful experience of the United States and Japan, the paper combines current national conditions in China and proposes legal advice to prevent risks of local government bonds, in order to provide adequate funds for urban infrastructure in our country and to promote the process of urbanization, to open up new financing channels of urban construction, and to establish a standardized, systematic and low-risk local government bonds market with Chinese characteristics socialism.This paper is divided into five parts, including the introduction and four chapters text:The introduction briefly narrates the risks of local government bonds in China are because China is actively trying to make the financing by local government bonds at the present stage, which requires us to reduce the risk of local government bonds. Study the legal prevention of risks of local government bonds is good to resolve financing to strengthen infrastructure, to make up for local financial gap, to accelerate the development process of Chinese urbanization, to expand domestic demand and to restructure economic for local government in China. Then analyzes the research progress on local government bonds between home and abroad, and reaches the different direction and the shortage of research at home and abroad, and then points out the importance of this study. Finally, describes research methods in this paper mainly are literature collection method, review analysis method and comparative analysis and logical analysis method.The first chapter outlines the current development of local government bonds in China, first uses historical data to explain that the issuance mode of local government bonds in China from "on behalf of compensation" to "spontaneous compensatory" to "spontaneous self-liquidating", shows that the issue size is gradually increase and the period of issuance changed from three years to 5 years, 7 years and 10 years, the period is longer and the issuance type is increasing and local government investors in our country are mainly commercial banks and special settlement staff analysis, and to analyze current development situation and condition of our local government bonds from these three aspects. Then clarifies the existing issuers of local government bonds from our current legal system, nominally it is local government, but in fact(except pilot areas) the issuer is Central Ministry of Finance; and there is no specific regulatory agencies and it is approved and issued by the central, and it is issued by the local budget management and accepts the supervision of the NPC. Besides, local government finances is not public, and the law doesn’t stipulate local government to reveal the project and the use of funds and the income of local government bonds, and only talks a little of the rating, and our country provides funds for local public building but there is no regulatory. In addition to the new regulations issued in 2014,there is no restrictions in hair refinance for old debt, in contrast, the regulations in 2009 given the legal recognition. Finally, summarizes the risks of local government bonds, first to summarize the general risks of local government bonds, including credit risk, market risk and moral risk, tax risk and other risks, then indicates that because of Chinese special conditions and economy, there are special risks in the process of issuance, transaction and using of funds of local government bonds in China.The second chapter combines with economy and the health of local government bonds in China, analyzes the legal prevention of the risks of local government bonds from the issuance, the main risks in issuance process are the risk of unknown issuers, risk of issuing size runaway and risk of approval unreasonable; then draws on the United States and Japan’s measures to control the risk in issuing process of local government bonds, including strict control of issuance and approval, as well as careful planning management, suggests that we must strictly control the issuance and approval of local government bonds, and set management plan. Then puts forward to take measures to prevent the risk of local government bonds in issuance process. Our country must ensures that local governments have the legitimate claims to issue bonds which is in line with laws, and increase some relevant regulations about how the local government should issue bonds in the "Budget Law", "Bond Management Regulations", the "Securities Act" and other laws and regulations. Bonds issuance size of local government should be strictly controlled by the central treasury and local government bonds should be approved by the State Council, as well as developing "Corporate Bonds Act", "Provisional Regulations On Local Government Bonds ", " Bonds Act " and other local government bonds special laws to regulate the behavior of local government bonds and related management, supervisory and legal responsibility. In the " Local Government Bonds Penalize Rule ", the illegal activities of local government are prohibited and punished, so the market management of local government bonds could be achieved.The third chapter analyzes the legal prevention of the risks of local government bonds from the transaction, risks in transaction process include the risk of premature disclosure of information, risk of inadequate credit rating, risk of lack of bond insurance, debt service reserve and government debt management system; Then combines strict information disclosure system and effective credit rating system, and comprehensive municipal bond insurance in US, and risks assessment and early warning systems in the US and Japan, all these tell us that we should learn from foreign to set up systems such as information disclosure, credit rating, bond insurance and debt service reserve fund to guard against the risk of local government bonds in China. Finally, based on the preceding analysis of the legal prevention of the risk of local government bonds in trading process in foreign, proposes some legal prevention advice for local governments in China. Firstly, we must enforce information disclosure system, which forces the local governments to disclose information on release plan, distribution arrangements and investment projects, project benefits, the use of proceeds and other important information through information disclosure legislation, as well as the establishment of a unified national bond information system, forcing local governments to disclose relevant information in the system, to facilitate public to inquire, and local governments can also achieve information disclosure by claiming the budget, auditing and reporting to ensure the right of citizens to know and supervise; Secondly, we could learn the advanced experience of foreign countries to improve our country’s credit rating system. Our country can develop "Credit Rating Law", "Investment Advisers Act" and other special laws and regulations in the rating industry and industry system to standardize our country’s credit rating, and learn from foreign experience to streamline our existing credit rating agencies. Local government bond rating must be approved by a nationally recognized good reputation, fair and objective rating agencies to issue bonds, while standardizing rating procedures to provide the community with objective, impartial, and perfect credit rating; Thirdly, the system of insurance reserves and debt security could be established, which means that local government pays to the central government some certain collection of debt as a percentage of the reserve, but the loan must be repaid within the time limit at the time of local government debt difficulties. Meanwhile, China can set up a special bond insurance company which provides insurance for local government bonds to share the risk of the bond market; then the system of local government bankruptcy could be established, local governments which can not repay the debt maturity can apply for local government economic bankruptcy, but does not involve political level in order to urge local governments to better regulate the issue of bonds; Finally, an unified central and local comprehensive debt management agency could be established, so central government has the capacity of unifying the management of local government debt, and then establish and improve our risk assessment and early warning systems, paying much attention to high-risk areas, and conducting risk warning when reaching warning line, urging local governments to take active measures to reduce the risk, and then reduce the risk of local government bonds through a variety of control systems.The fourth chapter analyzes the legal prevention of the risks of local government bonds from the using of funds. Firstly, analyzes local government bonds in China have risk of unsound regulatory mechanism, risk of lack of audit institutions, risk of financial opaque and risk of unreasonable debt and so on; Then explores the legal prevention of the risk of local government bonds from the using of funds of the US and Japan, strict legal and regulatory system in the US and Japan, particularly in the US municipal bond specialized regulatory agencies, security at the end of the repayment of Japan and independent audit oversight of Japan, all these inspired us that there must be rigorous regulatory regime and strict reimbursement system in the development of local government bonds; From the analysis discussed above, proposes legal prevention to deal with the risks in using of bonds of local government bonds. Firstly, the use of proceeds and repayment methods should be strictly controlled, the proceeds of local government bonds can only be used for public facilities in the region, instead of other spending. Local government which cannot repay within the limit can not be using the way of hair refinance old debt, but should reduce the risk and raise the funds through other channels; Secondly, strict accountability and rigorous assessment of the monitoring mechanism should be established, and the assessment of local government officials should be included into local government debt; Thirdly, supervision system should be established where the local authority for the supervision of principal debt, the NPC audit, the approval of Ministry of Finance, the discipline inspection and supervision of the community as an unit; Finally, an independent audit of local government agencies should be established in order to conduct a comprehensive audit and supervision of bond issuance, purchase, use, repayments and proceeds of local government bonds. Using this series of complementary risk control system to reduce the risk of local government bonds, which is beneficial to establish an efficient, healthy, and low-risk local government bond markets in our country. |
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