Empirical Research Of Local Government Credit Effect On The Credit Spread Of Urban Construction Investment Bonds

The implementation of the tax-sharing reform in 1994 reduced the fiscal revenue of local governments in China.Local financing platforms established by local governments injecting land and other assets to raise funds through the issuance of urban construction investment bonds became the main means for local governments to make up for the funding gap and balance fiscal revenue.In March 2009,Yinfa No.92 document supported the establishment of local financing platforms and the issuance of urban construction investment bonds.Since then,urban construction investment bonds have developed rapidly.Although the development of urban construction investment bonds has alleviated the pressure of insufficient local government construction funds,and has effectively promoted the development of local infrastructure and economic development in China,due to the close relationship between financing platforms and local governments,some investors believe that the urban construction investment bonds is one of the important sources of hidden debt of the local government.On the one hand,due to the strong debt repayment ability of some local governments,investors believe that there will be no substantial defaults on urban construction investment bonds,and local government credit can reduce the credit spread of urban construction investment bonds issued,which manifests as an implicit guarantee of government;As local governments intervene in the day-to-day operation of the platform,and the country's supervision is gradually strengthened,investors have expected that urban construction investment bonds cannot be redeemed on schedule.Instead,local government credit has increased the credit spread of urban construction investment bonds,which manifests as an implicit concern of government.Since 2010,the state has successively issued a number of policies that regulate the healthy development of urban construction investment bonds,the most representative of which is the State Council's Opinions on Strengthening the Management of Local Government Debts issued by the State Council in 2014(hereinafter referred to as "No.43 ")And the new budget law passed by the Standing Committee of the National People's Congress,aimed at clarifying the debt liabilities of local governments and enterprises,gradually stripping the credit of local governments in urban construction investment bonds,and rectifying the hidden debt problems of local governments.Under the general background,this paper first studies the impact of local government credit on the urban construction investment bond issuance credit spread.In addition,this paper investigates the impact of local economic development on the urban construction investment bond issuance credit spread.Moreover,this paper examines the change of local government credit of urban construction investment bond after the introduction of Circular 43 policy.The conclusion of this paper is that the impact of local government credit on the credit spread of urban construction investment bonds has both implicit guarantee of government and implicit concern of government;the economic development of the place where the bonds are issued can affect the credit spread of urban construction investment bonds,and the impact of local government credit on the issuance of credit spreads for urban construction investment bonds issued in high GDP areas is shown as implicit guarantee of government,while the impact on the issuance of credit spreads for urban construction investment bonds issued in low GDP areas is shown as implicit concern of government;No.43 The policy has weakened the implicit guarantee effect of local governments on urban construction investment bonds and strengthened the implicit concern effect of local governments on urban construction investment bonds.The research in this paper is conducive to helping investors change the focus of urban construction investment bond credit analysis,promote the successful transformation of local financing platforms,and promote relevant regulatory authorities to better solve the debt problems of local governments.