Risk Analysis And Development Approaches Of China’s Local Government Bonds

As always, Chinese local governments raise loans in many ways. Even though this behavior has not caused debt crisis, local debts can not be known about the actual scale because of the lack of transparence and marketize constraint. To improve the debt financing mechanism of local government and handle the relationship of debt management and stable increase, local government started issuing bonds in China since 2009. This behavior is beneficial to reduce risk of veiled debts and implement active fiscal policy.Up to now, the issue pattern of local government bonds has gone through three stages:’agent to issue and repay’, experiment provinces ’agent to issue and self-repay’ and ’self-issue and self-repay’. The issuing scale of bonds has been increased from 200 billion yuan to 400 billion yuan in 2014. Debt financing mechanism of local government dominated by bonds is favorable to control risk of local debts and built market of local government bonds which should be promoted effectively. As the reform of local government bonds is advancing constantly, how the risks of the bonds are going and how the bonds should develop in the future are worthwhile to probe into.The present situation of the local government bonds’ issuance is described in this thesis firstly. Secondly, kinds of bond risks which the local government is faced with are recognized and analyzed. Thirdly, taking Shandong Province for example, the article takes the advantage of revised KMV model to measure the credit risk of local government bonds in this area, then it demonstrates the issuing scale of local government bonds in Shandong is in safety range which could enlarge issue volume. Finally, the thesis analyzes the feasibility of the development path of Chinese local government bonds, with the experiences of operation mode and management system of local government bonds in developed and developing countries.