Research On Local Government Debt Risk Of Gansu Province And Its Influence On Regional Financial Stability

Since 2008,the U.S.financial crisis has spread across the globe.In order to prevent the economic downside risks,the China central government has introduced a“4 trillion”stimulus plan.Although this positive fiscal policy has promoted economic growth in the short term,it has caused local government debt.The risk has been caught in a crisis.In addition to this,although the Central Government of China allows local governments to issue bonds to obtain funds,the "Budget Law" brings some restrictions on its systems and regulations,and the financing platform has become a hidden channel for local governments to raise funds?carry out a series of government activities?fulfill government responsibilities and make up for deficits.Local governments use the financing platform,issuing bonds,financing guarantees and other acts to borrow,which are closely related to financial institutions.If local government debt risk occurs,the smooth and coordinated operation of regional finance is greatly affected.During the “two sessions” in March2018,it was stressed that local government debt management should be strengthened and measures should be taken to “open the front door and block the back door” to ensure that no systematic debt risk occurred.Therefore,if local governments can effectively perform their functions and maintain the steady development of the regional financial system,it is necessary to strictly and effectively manage local government debtrisks and strengthen the credit risk management of financial institutions.First,the studies of local government debt and regional financial stability by foreign institutional scholars and domestic experts are all quite effective.This article draws on existing academic research results to illustrate the sources of local government debt risk and regional financial stability.The concepts,essential meanings and economic theories have analyzed the influence mechanisms of local government debt on regional financial stability from the three approaches of banks,bonds,and financing guarantees,providing a theoretical background for quantitative analysis of articles.Secondly,based on the analysis of the status of local government debt in Gansu Province and financial operation status,according to the selection criteria of the index system,the index system was constructed,and the dimensionality reduction analysis method in metrology analysis was used to synthesize the local government debt risk and regional financial stability index of Gansu Province.Based on the synthesized index,a VAR model was established to quantitatively analyze the impact of the local government debt risk of Gansu Province on its regional financial stability.Finally,combining the results of empirical research,this paper concludes that local governments should standardize their financing behaviors,sort out debt stocks as soon as possible,and strictly managedebt risks.Financial institutions should strengthen credit risk management and maintain the smooth operation of regional financial systems.