The Research Of Chinese Quasi-municipal Bonds’ Credit Risk

China’s tax system was reformed in1994, resulting local government’s economicrights far less than its power, there’s a huge gap between expenditure and revenue.The overall level of China’s economic was very low before reform and opening up,urban construction funds was seriously lack. In order to circumvent the current budgetlaw, which prohibit local governments to issue bonds directly for city construction,local governments have set up local financing platform to issue bonds for themunicipal infrastructure construction in the form of enterprise. In2008, globaleconomic crisis occurred, to avoid the risk of a hard landing for China’s economy, theChinese government implemented a4trillion fiscal stimulus package, investing inmunicipal infrastructure construction, the quasi-municipal bonds experienced anexplosive growth in2009. Quasi-municipal bond’s expansion alleviate the difficultiesof local government financing effectively, and plays an important role in thesupporting of local infrastructure construction, affordable housing and local economicdevelopment. How to control the attendant credit risk is China’s current problem. Thispaper will set the credit spread as a measure of quasi-municipal bond’s credit risk,then select the difference of the same remaining period of quasi-municipal bonds andnational bonds as explained variable. Researching the influencing factor of ourquasi-municipal bonds’ credit risk from local government’s financial strength, issuer’sfinancial strength and other issuing elements. The results show that the issuer’sfinancial strength shows no obvious effect on quasi-municipal bond’s credit spreads,while local government’s financial strength and other issuing elements showssignificant impact on it.