A Research Into The Default Risk Of Local Government Bonds And The Appropriateness Of Its' Scale

The "spontaneous self-return" model of local bonds was implemented in 2015,and the central government allowed provincial governments to issue local governments ' debts independently and at the same time to replace the government's debts,it would offer a large amount of local debt.The unreasonable exertion of the debt-issuing scale will lead to the excessive debt rate of local government and increase the local financial pressure.In addition,the scale of local government bonds issuance should be subject to the quota management of central government,the reasonable scale of local government bonds is the most important and urgent problem for the local government debt management.This paper sums up the characteristics and drawbacks of the traditional financing methods of local government in China,and reviews the development history of local government debt and a series of changes of local debt development in recent years.With the help of the national balance sheet and the modified local debt KMV model,this paper calculates the default distance and the probability of default of local government debt,and calculates the size of the local government security issuance.And through analyzing the dynamic situation of stock and maturing local government debt in our country,this paper examines the adjustment mechanism of the scale of local government debt.It is found that the two major revisions for the KMV model have magnified the security issue of the local government bonds to some extent,but the scale of the local government debt is not only dependent on the size of the security issue,but also affected by the local bonds circulation and adjustment cost in the previous year.Therefore,the forecast value of the moderate bonds issuance of local government bonds does not enlarge.Through forecasting of the scale of the local government bonds,we can see that there are some differences in the amount of the local government bonds,but the total risk of local bonds is basically controllable.In the future stage,the distribution of the bonds increment and the scale limit of the stock bonds will be the key point to standardize the local government bonds management.Finally,based on the actual situation of local government bonds in our country,this paper puts forward some policy suggestions on standardizing our local government bonds management,not only exerting the positive role of government borrowing,but also keeping the bonds risk "red line",sticking to the bottom-line of sustainable development and promoting the healthy and sustainable development of economic society.