The Research Of China’s Administrative System Of Local Government Debt

The causes of local government debts mainly including a)The contradiction between the administrative and financial powers among central and local governments caused by system of tax distribution reformation and the old Budget Law that prohibiting local government raising loans lead to strong off balance sheet financing impulse of local governments.b)“Different right in the same place” provided in the Land Administration Law of the People’s Republic of China and government monopolising primary market of lands result in the dependence of local government income to land finance.c)The unbalance of financial system and strong dependence of commercial banks on interest rate difference of deposits and loans cause strong incentive of banks to take deposits.These three causes formed soft budget constraint to local governments’ raising loans as well as non-marketing pricing of governments’ debt financing.The fast economic growth from Reform and Opening is derived by investment and dominated by governments,which undoubtedly strengthened motivation of debt financing for the governments to invest in infrastructure construction and promote economic growth.However over off balance sheet financing and non-transparency of finance information will cause governments’ debt risks.What’s more,insufficient supervision on local governments’ debts will lead to risk accumulation of debt system.Too much dependence on land finance and loans of banks of local governments will upgrade the governments’ debt risk to financial crisis.Governments and authorities have raised great concern to local governments’ debt problem.However,for the non-transparency and exclusion of financial budgets of local governments’ debts in long terms,statistics,identification and categorizing have not been able to be unified and standardized.<The Notice on Risk emergency response plan of local government debt> issued by General Office of the State Councilin 2016 put forward the system and categories of local governments’ debts and clarified that only local government bonds and various types of bank loans,bonds,trusts etc.through local financing platform by 2015,which were audited,examined and determined to belong to the local government who has the responsibility to repay the debt,was in the scope of local government debt.Generally speaking,the administration system history of Chinese local governments’ debt can be identified into three phases: a)Lack administration on local debts before 1994 causes barbaric growth and chaos of local governments’ debts before 1994.b)The duration from 1994 to 2014 when the Budget Law was passed and amended.During this time,although the local government debt was restrained and regulated,the administrative and financial powers still did not match under the financial system framework of the local government.Furthermore,the government had a strong intervention in economic development which resulted in the local government debt continue to move out of the budget table and this was also the risk formation and increasing stage of the local government debt.c)From the year of 2014,when the Budget Law was revised,until now,the appropriate liberalization of the local government debt authority was begin,and followed by the subsequent strengthening of the management of local government debt,improvement of the standardization of local government debt management,and enhancement of the local government debt risk prevention and crisis handling capacity which would play a critical role in Chinese prevention of local government debt risk and even the crisis through the documents "No.43","No.225","No.88" and "No.152 " etc.In the future,there is also a need to strengthen the local government debt budget preparation,establishment,and improvement in the debt management agencies and control mechanisms.Also,we need to strengthen the financial system and inter-governmental fiscal relations,make and perfect the local debt laws and regulations and improve the accountability mechanism in order to further strengthen and improve our country local government debt administration system.