Local Government Debt Risk Research In Our Country

Looking back to local government debt, it plays an important role in the past twenty years’economic development in our country. The rapid development of local economy has an indelible contribution to our country. During the period, the initial function of local government debt is to make up for the deficit, as the time passed by, it has gradually evolved into indispensable finance to support the local economy development. However, in order to reduce the2008international financial crisis on the negative impact of China’s economy, the central government made the four trillion investment plan to stimulate the development of the economy. The direct result is local government debt has a large inflation in scale in a short period of time for the most of the money undertaken by the local government. According to China’s "budget law", the local government has no rights to issue bonds, but, where such a large debt comes from, and how to operate is out of the government regulation of budgetary revenues and expenditures, that’s moment when makes central government sensitive to local government debt problem. In2013, in order to find out local government debt situation in our country, the national audit office joint related department of local government carried out a comprehensive diagnostic screening, it is found that local government debt has many problems, and a conclusion that China’s government debt risk is under the overall control. Therefore, the study of local government debt risk problem is full of much significance and practical value.Many experts and scholars have researched in the field of local government debt risk and achieved fruitful results, but in this paper, we study the local government debt risk from the perspective of fiscal sustainability even though it is established on the basis of predecessors’ research results. The main work and research values embodied in the following aspects:One is we unify three types of local government debt organically, while the traditional scope of the study of local government debt risk is for local government debt or it is for the local government contingent liabilities directly, so as to realize the true sense of the local government debt risk research. According to the audit report for the standard of three kinds of government debt, government debt can be divided into three categories, the debt government should be responsible for repayment, the debt government guaranteed and the debt government may have the responsibility to rescue, which combined is called government debt. However, in the traditional sense of the government debt refers to the debt government should be responsible for repayment, contingent liabilities refers to the last two types of debt.Second, the analysis of different perspective, this article analyses the debt risk from the perspective of fiscal sustainability. In view of the different understanding of debt risk and evaluation standard, we may obtain different conclusions on debt risk assessment. This paper’s understanding of local government debt risk is:local government does not need to repay all the debt within a certain time, but it determined your ability to raise the needed capital when it’s needed. You can make the debt to be a "sustainable debt", as long as you can ensure fiscal sustainability and has no influence on economic development and social stability, there is no debt risk of local government.Three is the establishment of risk evaluation system on fiscal sustainability principles to construct the balance sheet as the core of the static risk assessment and intertemporal budget constraint based dynamic risk evaluation system. The first level is early judgment of debt’s risk, with a few single index are analyzed. The second level is from static local fiscal sustainability, namely the judgment of risk from net worth of local government. When a local government with a positive net worth, there is no risk; while it is negative, it reflects local governments insolvent, debt risk exists. The third level from the perspective of dynamic local fiscal sustainability debt risk judgment. Sustainability is risk free, conversely, is a risk. That is to say, in a certain period of time, even if the government is unable to reduce the total amount of debt, but can through normal channels to raise funds to pay principal and interest, so the debt risk is still under control.Four is the calculation of the debt that the local government should be responsible for as the basis of local government debt risk analysis which we get in accordance with whether the investment project is to generate cash flow and who dominate cash flow. In three kinds of different nature of the debt of local government, local government’s responsibility is different, we cannot simple directly sum the three types of debt in our analysis of government debt risk. This paper will use the debt that the local government should be responsible for as the middle bridge.Five is we made a new interpretation of the local government assets and liability in building the balance sheet to evaluate local government debt risk for reflecting the evaluation results more realistic. In this paper, liability is defined as the debt that the local government should be responsible for, assets is defined as the local government assets that can be used for repayment rather than all kinds of assets.In this paper, the study of local government debt risk mainly from five parts. The first chapter is introduction. Mainly introduced background of this article why we selected this topic and the research significance, and research methods, innovation and deficiency. The second chapter is the present situation analysis of local government debt. Mainly to the difference between the concept, the comparative analysis of the basic situation of local government debt in our country, and we discussed the fundamental reasons for the formation of local government debt from the capital supply and demand contradictions. The third chapter is the assessment methods and selection of local government debt risk. We introduced the related debt risk evaluation methods and constructed the three levels of debt risk evaluation system that’s creative in this paper. The fourth chapter is local government debt risk-in Jiangsu province as an example for empirical analysis. Compute the debts the local government is responsible for in Jiangsu province, combined with Jiangsu province in2013, the latest government debt information according to the third chapter three levels of debt risk evaluation step by step to analyze its debt risk. The fifth chapter is conclusions and suggestions.Through the research of this paper, we get the following conclusions: first, we need to analyze whether the local government finance is sustainable from static and dynamic aspects for it is the standard of debt risk judgment. Second, there is no risk on local government debt in Jiangsu province, and the debt is still in the controllable range. Third, the local government debt scale has the vital significance in the study of debt risk, but it can’t be blinded by its surface figure. Fourth, it is meaningless to talk debt lonely, real debt risk assessment needs to be combined with the assets that local governments can disposable, so it’s needed to establish the local government balance sheet what can reflect the real debt paying ability of local government.