The Research On Assessment And Prevention Of Local Government Debt Risk In China

Since the implementation of the tax sharing system in 1994, along with property rights transfer to the central government, devolution of powers to local governments, many local governments have emerged with varying degrees of financial difficulties. To ease the financial difficulties and accelerate the economic development of the region, the local government began to borrow in distinguished form through established financing platform companies, etc. The scale of local government debt has expanded gradually, debt risks have emerged. Once the local government debt crisis breaks out, it will seriously harm China’s economic development and social stability. So how to guard against local government debt risk and minimize the risk of debt has become more urgent and necessary. Research object of this paper is local government debt risk, focusing on how to evaluate and prevent the local government debt risk.The whole paper is divided into six chapters. The chapter one is an introduction, describing the background, research significance, the main research content and research methods, while focusing on a review of current research. The chapter two is the definition and classification of local government debt and risk, and then summariz the local government borrowing rationality theory and local government debt risk theory. The chapter three is an objective analysis of the current situation of local government debt from the perspective of the formation and development of local government debt, the scale and structure, sources and uses. Our analysis indicates that the total scale of local government debt is huge and its structure is irrational; there are various forms of debt and debt subject; the way of borrowing is covert and debt transparency is very low; possibility of debt default is great; debt repayment is highly dependent on land revenue; debt management is not standardized. On this basis, we can identify the main forms of current local governmental debt risks. The paper believes that local government debt risk include not only the inherent risks like the total volume risk, structural risk, proficient risk, deficit risk but also external risks like transferring debts to upper level government, financial risk, public risk. The chapter four is the analysis of the contributing factors about the local governmental debt risks through multiple aspects such as financial system, debt’s management and government actions, etc. Then the author builds a local government debt risk assessment system. The index system is formed by the inherent risk monitoring indicators, external risk monitoring indicators and solvency indicators. The chapter five chooses the debt data from 30 provinces and uses the factor analysis in SPSS software to analyse the real risk of their debt. The result indicates that there are different levels of debt risk in these provinces. The provinces that debt risk at high-risk level include Guizhou, Gansu and Qinghai etc. The chapter six put forward some measures about how to prevent our local governmental debt risk. These measures are as follows:deepen the reform of fiscal and taxation system, establish and improve local financial guarantee mechanism; reasonable definition of the boundary between government and market, effectively change the local government functions; improve local government performance evaluation and incentive mechanism to standardize government behavior; giving local governments the right to issue bonds to build standardized local government debt financing mechanism; strengthen local government debt management, improve local government debt management system; establish and improve local government debt risk early warning and emergency response mechanism.