Study On Credit Risk Of The City Investment Bonds In China Based On KMV Model

Under Chinese special legal system、policy and financial system,the city investment bonds in our country are the vital tools to raise money for urban construction and have its own characteristics.After the reform of the tax system in 1994,the central finance income significantly increased,the local fiscal revenues accounted for the proportion of the national fiscal revenue declined.Under the constraint of the Budget Law,the local governments cannot issue bonds but to set up the local government financing platforms to raise money to meet the needs of construction and operation of the general municipal roads,public services and other public projects.The origin of the city investment bonds give the huge difference form the municipal bonds in western developed countries.In 2009,the central government introduced four trillion plan in order to resist the negative impact from the global financial crisis and the local government financing platforms were also encouraged to issue bonds to invest in fixed asset.The effect benefited from the city investment bonds is significant,but they also brought a lot of problems such as the expanding amount of debt、the lack of enough policy specially designed to serve the bonds and illegal guarantee.With the gradual changes of macroeconomics,these years have seen increasing default of credit debt.The close relation between the city investment bonds and the local government has deepen the consequence that the default will lead to,not only the huge damage to the local government but also the crush to the developing financial system.In visible future,urbanization will continue to occupy the several most important development goals in our country,that means nondecreasing local governments’ demand for money.The city investment bonds will still play irreplaceable roles considering that the municipal bonds have just started.How to balance the good and harm of the city investment bonds is urgent problem in today’s bond market.This paper focuses on the credit risk of city investment bonds and city investment bonds,sorts out the development history of city investment bonds in China for nearly 30 years,introduces the supervision policies of city investment bonds in various stages,and analyzes the development characteristics of urban investment bonds.The following is a brief description of the market situation of the city’s investment bond market,supplementing each other from the perspectives of stock and increment.Again,using the improved KMV model,all the provinces in China were selected as the analysis targets.Based on past historical fiscal revenue data in these three regions,the fiscal revenue in 2018 was forecasted.The result was that the scale of urban investment bonds issuance is safe.It is proposed that the proportion of debt and fiscal revenues must be controlled within a certain safe range to ensure that the city’s investment debt will not default.Then from the point that credit risk arises from the mismatch between bond issuance size and local fiscal strength,there are three specific aspect.On the basis of this analysis,the causes of the credit risk of urban investment bonds were analyzed,and the policy recommendations for dealing with the risks of urban investment bonds were presented.First,we must solve the problem of poor profitability of urban investment companies.Second,we must standardize the behavior of various intermediary agencies in the bond market.Third,we must actively seek effective new bond guarantees.And then we must accelerate the reform of the fiscal and taxation system,and solve the government deficits from the root.Finally,the obligations of the government and regulators have been emphasized in terms of bond regulatory agencies.