Research On Local Government Debt Risk Assessment In China

In recent years, with the development of Chinese society and economy, both for the need of social development and the need of local government performance appraisal, the local government are increasing investment in the urban infrastructure and public services. At the same time, people demand for infrastructure and people’s livelihood engineering is increasingly intense, in the face of such a large investment, the local government funding is very limited, choosing the way of borrowing to raise funds to become common phenomenon, but it also brought a series of problems, including government debt rapid expansion, debt management Lacking, the corresponding problems such as imperfect laws and regulations as well as information opaque, which increased the debt risk of local government.Local government debt risk is not only an important hidden trouble to local financial security, also impedes the orderly conduct of the government administrative work, in the long run even could inhibit the development of local economy and restrict the social harmony and stability. Therefore, strengthening the local government debt risk prevention and establishing local government debt risk assessment system is extremely urgent.This article firstly illustrates the research status at home and abroad, and puts forward the problems which need to study in this paper. Starting with the local government debt risk warning, the causes and management of the basic concept, on this basis, this paper expounds the local government debt risk evaluation model and theory of analysis, then summed up the risk of local government debt and its definition, classification and potential causes which build up a theoretical foundation to the research of this paper. Secondly, this paper designs our country local government debt risk assessment system. To conduct a comprehensive grasp of the debt risk of local government in C hina, according to the specific situation of our country economy, it chooses the scale, structure, balance risk index, financial risk index and social security risk index research significance as the five categories of risk indicators, and uses the analytic hierarchy process(AHP) to determine risk weighting of each index, then evaluates of local government debt risk grade on the basis of the fuzzy comprehensive evaluation method, followed by building the KMV model on local government debt risk of default probability criterion after getting the level of debt, at last sets up a system of local government debt risk assessment. Finally, based on J province as the research object, this article will carry on the empirical analysis of debt risk of local government in 2013. According to the result of fuzzy comprehensive evaluation method, we can find that in 2013 local government debt risk grade judgment of J province is located in a safe area, which is based on the principle of biggest. Meanwhile, the empirical results of KMV model can help us get that in 2013 local government debt default probability of J province falls on the margin of safety. Therefore, based on comprehensive empirical analysis results, we can conclude that local government debt risk of J province is in security area at present, but the scale risk, the financial risk and the potential risk brought by financial imbalances are still exist.To sum up, the research conclusion of this article is as follow:Firstly, this paper analyzes the phenomenon of large local government debt scale, disguised financing, unreasonable debt structure distribution status, and obtains the underlying causes of China’s local government debt risk from the macro environment, micro environment, financing environment and the public environment.Secondly, This paper builds the system of local government debt risk assessment. The system initially applies fuzzy comprehensive evaluation method to evaluate local government debt risk level, and establishes the KMV model to measure the probability of local government debt default. At the same time, the KMV mode l analysis results also played the role on the evaluation results of fuzzy comprehensive evaluation method.Thirdly, with the empirical analysis of J province, we find the results of fuzzy comprehensive evaluation method and the KMV model are coincided. The empirical results shows that J province local government debt is still in the safety area with potential risks. The empirical results show that the local government debt risk is influenced by scale risk, financial risk and local government revenues and e xpenditures. The results also provide an important theoretical basis for the local government to take measures to prevent debt risk.