Current Situation,Default Risk And Countermeasure Of Local Debt In China

Since the implementation of tax distribution system which emphasizes the centralization of governmental authorities and the decentralization of financial power,its shortcomings,such as imperfect supervision mechanism,unsound assessment of economic performance during term of office,unbalanced economic development in various regions and deficit of fiscal revenue and expenditure,have gradually emerged.In recent years,local governments have assumed more administrative responsibilities,therefore,fiscal expenditure has increased sharply,and the scale of government debt issuance has risen dramatically.As a result,the burdens of local governments have further intensified.Since 2014,the Ministry of Finance has claimed credit guaranty on local government debts,which has already led to the nationwide concern about their risks.Excessive local government debt will trigger credit risk,or even systemic risk of entire financial industry.Due to the various effectiveness of economic development at provincial level,the backward economy,weak debt-paying ability of some provinces,insufficient awareness of default risks,and lack of corresponding risk prevention mechanism,have led to a significant increase in the probability of default risks.Strengthening the risk management of government debt,the only legal source for local debts,has become an increasingly important task of financial departments.Based on the risk status of local government debts in China,this paper explores the risks of local government debts from the perspectives of both theory and practice.As for the empirical part,on the basis of financial data of the provinces and cities in recent years,the revised KMV model is used to measure the guaranteed financial revenue and the probability of local debt default in the next few years,thus further quantifying the default risk of each province and city.From the theoretical point of view,the risks of various provinces and cities are classified and analyzed according to the empirical results.Through the factor analysis of high default probability and the overall statement of local debt risks nationwide,this paper aims to investigate the real crux of local government debt risk,in the hope of putting forward feasible solutions.Taking the local debts of a batch of provinces and cities nationwide as the research subjects,this paper elaborates the risk management of local debts from five aspects.First of all,the introduction,focusing on research background,sorts out the structure and methods of this paper,and presents the innovations and shortcomings based on the results of domestic and foreign researches.The second part is an overview of local debts,explaining the regulatory policies of local government debts in different stages and their characteristics during different time periods.In the third part,according to the data of all provinces and with the assumption of different debt issuance ratios,the risk of each province and city in different time periods is forecasted using KMV model.The fourth part,based on the empirical results,explores the causes of high-risk provincial debts from the perspectives of local government,market behavior,issuance intermediaries,etc..In the fifth part,the relevant feasible suggestions for the causes of existing local debts are proposed.