The Research On Credit Risk Of China’s City Construction Investment Bond

The growing demand of Investment funds for urban construction and the local government’s limited growth for the amount of revenue under China’s tax system reform is a mismatch that led to our local government fiscal gap is growing. Shortage of funds for urban infrastructure investment and the total amounts for investment has become common problem faced by all levels of local government,which seriously hampered the process of urbanization. Lack of revenue and expanding of expenditures led government to seek market-based financing approach. But China’s " Budget Law" also provides that local governments may not issue local government bonds. Such as local government agency to exercise the functions of financing through the issuance of bonds came into being, The city construction investment bond is thus obtained. As we all know, in 2008 by the U.S. subprime mortgage crisis triggered the global financial crisis, countries around the world are developing a variety of stimulus to economic recovery. China is also in 2009 introduced a four-trillion economic stimulus policy, which stimulated urban construction spending of the local government but also bright the city construction investment bond in a period of explosive growth. In recent years, the amount of city construction investment bond’s issuance body are increasing, the scale and scope of the issue are expanding, that has gradually led to a variety of investment company credit storm events, causing a growing number of investors and the public’s attention.The article first using the method of theoretical analysis, in the first part and the second part analysis the theory about city construction investment bond, followed by analysis of the credit risk of the city construction investment bond including local financial risks and their management of risk, and analyze the reasons for these risks incurred. In the fourth section summarizes the various models simple risk measurement, select the KMV model to measure the risk of city construction investment bond, integration reflects investor sentiment on the basis of this model uncertainty factor of Knight establish KMV contain different investor sentiment credit risk measurement. Then part of the fifth uses empirical analysis in Tianjin city construction investment bond for example predicted revenue of Tianjin in 2014 by the model previously established, and estimates the size of the city voted debt security issued, change the mood of uncertainty factor values shown may reflect expectations of the city voted bonds range from the impact of default and default rates, the study will give reference to local government when they decided to issue bonds.Finally, the article proposed suggestions to prevent the risk of city construction investment bond,such as strengthen local government debt management, improve city construction investment bond’s issuance and Regulatory mechanisms.