Researches On Legal Regulations Of The Default Risk Of Chinese Local Government's Debt

With the reversed Budget Law on Aug 31 st, 2014 formally carried out on Jan 1st, 2015, Chinese government's borrowing powers were finally legalized, the management of local government's debt was there upon brought into legal procedures. Local government's debt is closely related to national governance. Regarding the basic attributes, it is not only the important tool and core object of local governance, but also the outcome of the multilateral game and risk balance among the centre, local, enterprises and banks. In the sight of major function, it connects various relationships in the civil society, and is of significant positive effects on increasing the citizen's welfare and boosting the country's overall economic development, which may promote good governance and breed modern local governments when using properly. But meanwhile, along with the globalization and modernization, “risk society” has come round; defaulting on the local public debts is not the individual case among the world, which would disturb the normal operation of local finance, or would even lead to systematic unrest of nation's macro-economy.Laws are the pivotal tools in running a country. If China in the wave of transformation and reformation wants to break the dilemma of local government's debt, regulating it and preventing default risk need to be done via building the legal system in the pattern of “the rule of law”. According to the object, researches on legal regulations of the default risk of Chinese local government's debt has done researches in the following aspects using the methods of analysis of word, analysis of history and analysis of comparison:First of all, it began with Chinese local government's debt and default risk, taking the “local government's debt” as research object, which is of wider category and is more suitable for our current debts fact, by analyzing the connotation differences between “local government's debt” and “debt of local government”, and evaluating the situation of default risk of Chinese local government's debt on the basis of clarifying the emergence and development of our local government's debt: it was overall controllable, yet its partial and dispersed risks were no less significant.Secondly, legislative inspection on the regulation of default risk of Chinese local government's debt, divided its process into “loose adjustment to rules and policies period” and “strict supervision to laws and regulations period” taking the implement of the reversed Budget Law as demarcation point, and focus on sorting out current law system, finding that the legal process of default risk of our local government's debt regulation was started by the reversed Budge Law and its necessary legal system while two legal dilemmas were still existing: one was the lack of legal norms to manage local government's debt; the other was the fiscal relations between the central government and local governments needed legal adjustment.Thirdly, taking Chinese current problems as the start point, conducted further studies on Japan as it was much similar to us in system and culture, and drew the conclusion that legally govern the default risk of local government's debt needed not only to pay special attentions to normal debt management, but also to take better actions to improve the legality of fiscal system.Finally, based on our physical condition and needs at this stage, learned from Japan's experience, put forward the legal suggestions to govern our default risk of local government's debt via dredging and blocking to reach the goal of tackling the problem. Mainly including: Guided by “no assistances from central government principal” and “classified management principal”, in a short time, started with three steps of normal debt management namely before head constraint, process supervision and post-event treatment, focused on taking temporary solutions to gradually establish a management system of local government's debt that is “authority, responsibility and profit”, “loan, use and return” are unified, hence forming the legal system of debt management with the Local Debt Law at the core; in the long tern, temporary solutions must be taken, via revising the Constitution, establishing the Basic Law of Finance, clearly dividing the power of central government and local government by means such as “local tax lengthways delegated legislation” model, fully straightening out fiscal relations between central government and local government, and strengthening fiscal capacity of local government, put forward legalization of fiscal relations between central government and local government through establishing diverse and multilevel legal system, thus avoiding the default risk of local government's debt from the system source.