The Research On Credit Risk Of Quasi Municipal Bond Of China Local Government

With rapid growth of Chinese urbanization level, local government’s fiscal expenditure on the municipal infrastructure construction also increase quickly. But under tax sharing reform, the local fiscal revenue cannot satisfy the local fiscal expenditure by far the demand. Also, under limit of the budget law of the People’s Republic of China, local government cannot issue Municipal Bonds as foreign government. For solving the fiscal gap, local government finance platform emerged and thrived. Local government finance platform finance for local government through issuing of Quasi-municipal Bond, and the money mainly invest in municipal infrastructure construction or public welfares. With the growing Quasi-municipal Bond’s scale, the quality of the bond is declining, and the credit risk of Quasi-municipal Bond also increasing. Under this background, to explore how to measure risk and confirm largest repayment of bond scale by KMV model which optimized by Knightian uncertainty has important practical significance.At first of this paper, introducing the concept and characteristics of Municipal Bonds and Quasi-municipal Bond, and next doing a summary of the reason of Quasi-municipal Bond’s born, the development history and development status, discussing the causes of credit risk. This paper choice KMV model for figuring out Quasi-municipal Bond’credit risk. And in order to make the model fit reality better, this paper introduces Knightian uncertainty into KMV model. At last, this paper selects Chongqing as an example of a credit risk empirical study.In the empirical study, at first, introducing the Chongqing government debt, and forecasting fiscal revenue through autoregressive equation. Based on the above results and optimized KMV model, the paper study expected default frequency (EDF), and different values of Knightian uncertainty has what influence on EDF.Based on the findings, for the credit risk of Quasi-municipal Bond, article from three perspectives make reasonable suggestion.