The Study On Credit Risk Of Local Government Bonds

On September21,2014, the State Council General Office issued the firstcomprehensive document of local government debts management "The Advice onStrengthen Management of Local Government Debts ", which requires establishmentof normative local government debt financing mechanism, debts scale control andbudget management of local government, control and elimination of the localgovernment debts risk.The insolvency of Detroit in2013sounded the alarm bell for Chinese localgovernments with large scale of debts. Debt issues improperly handled may escalateinto debt crisis, which may even cause adverse effects on the macroeconomic operationand social stability. With the sharp debt expansion of local governments in recent years,relevant risks are also beginning to loom. How to mitigate the debt risks of localgovernments has become a thorny problem for local governments.This thesis briefly summarized the history and current situation of localgovernment debts in China, and using5C factor analysis method to conduct acomprehensive analysis on Local Government Bonds from the five aspects ofCharacter, Capacity, Capital, Collateral and Condition,and also analyze the cause oflocal debt risk on the basis of previous research results. At the same time, this papercollected relevant data of Jiangsu Province from1994to2013. Through data analysis,we got the reasonable debt scale and expected default rate of Jiangsu Province overthe next few years by KMV model. The model estimates that the debt scale of JiangsuProvince should not reach42.9billion RMB with the expected default rate no more than0.4%in2014. Finally, according to the analysis process and results, this thesisput forward corresponding suggestions.