| Since the reform and opening up in 1978,the process of urbanization and industrialization in China has accelerated,and local governments need to raise a large amount of funds to supplement infrastructure shortcomings and build public welfare projects.The reform of the tax-sharing system in 1994 led to a mismatch between the fiscal and administrative powers of the central and local governments.The proportion of local government fiscal revenue in the national fiscal revenue declined,while the construction of public welfare projects and quasi-public welfare projects has increased.As a result,the local government funding gap has gradually increased.At the same time,the old “Budget Law” stipulated that “except as otherwise provided by the law and the State Council,local governments must not issue local government bonds.” Local governments have restricted financing channels in accordance with laws and regulations.The huge demand for funds has led to the emergence of local financing platforms as local governments’ investment and financing vehicles.It has raised a large amount of construction funds through bank loans and city investment bonds.In 2009,in order to alleviate the adverse impact of the global financial crisis on the China’s economy,the central government launched a 4 trillion yuan economic stimulus policy,of which the central government provided 1.18 trillion yuan of funds,and most of the remaining supporting funds needed to be raised and resolved by local governments.As a result,city investment bonds have developed rapidly,the scale of bond issuance has risen sharply,and the remaining balance has gradually accumulated.Regardless of the absolute size of city investment bonds at the end of the year or the relative proportion of city investment bonds to non-financial credit bonds,city investment bonds have become an important part of China’s bond market.However,the huge scale,opaque information and irregular management easily lead to huge risks in city investment bonds,and become an important source of hidden debt risks for local governments.In order to prevent and resolve the hidden debt risks of local governments,the central government adopts the governance principle of “opening the front door and blocking the back door”.“Opening the front door” is to allow local governments to issue bonds in accordance with the law.The new “Budget Law” in 2014 gives local governments the right to raise funds in accordance with the law.Local governments can raise funds to build infrastructure and public welfare projects by issuing government bonds.It can reduce reliance on local financing platforms to raise construction funds.“Blocking the back door” is to prevent local governments from borrowing illegally and illegally.In 2014,“Opinions of the State Council on Strengthening the Management of Local Government Debts”(referred to as Document 43)stipulated that local government financing cannot be borrowed through local financing platforms.It trys to clarify the relationship between local financing platforms and local governments,and to promote the market-oriented transformation of local financing platforms.In 2017,the session of the Political Bureau of the Central Committee of the CPC stated that “we must actively and safely resolve the accumulated risk of local government debt,effectively regulate and control local government debt financing activities,and resolutely curb the increase in hidden debt”.The meeting highlighted the importance of addressing hidden debt risks in preventing and resolving local government debt risks,and city investment bonds are an important source of local government hidden debt risks.If the risk of city investment bonds is not handled properly,it may cause chaos in the bond market and adversely affect the financial system and government finance.At present,local financing platforms are still in the process of market-oriented transformation,and they still undertake the task of constructing public welfare and quasi-public welfare projects.The relationship with local governments has not been completely rationalized.In order to build infrastructure and public welfare projects,local governments will still provide various help to local financing platforms in financing,and even provide disguised guarantees in violation of laws and regulations.When the local financing platform’s operating conditions are poor,debt repayment is difficult,and it is on the verge of bankruptcy,city investment bonds are likely to turn into hidden debts of local governments.To prevent and resolve the hidden debts of local governments,we need to start from the source of the hidden debts,analyze the causes and mechanisms of the hidden debts,and take targeted measures for standardized management.Therefore,this article will start from the three links of “borrowing,using and repaying” of city investment bonds to study the management of city investment bonds.The “borrowing” of city investment bonds is the focus of research.Firstly,the impact of credit enhancement measures and government finance on city investment debt ratings and pricing will be examined,and the similarities and differences of credit rating agencies and investors’ response to credit enhancement measures and government finance will be discussed.The credit enhancement measures for city investment bonds include special clauses and guarantee measures.The special clauses are divided into issuer clauses and investor clauses according to different rights subjects.Guarantee measures are divided into mortgage,pledge and third-party guarantees according to different guarantee methods.Government finance includes implicit guarantee and financial support from local governments to local financing platforms.The study found that credit rating agencies and investors have very different responses to credit enhancement measures and government finance.Credit rating agencies recognize issuer clauses and are hesitant about investor clauses,while investors react the opposite.Among the guarantee measures recognized by credit rating agencies,only third-party guarantee has been recognized by investors to a certain extent.Government implicit guarantee and financial support are recognized by credit rating agencies,while investors only recognize government implicit guarantee.Secondly,based on the similarities and differences between credit rating agencies and investors,we examine the impact of credit ratings and their proprietary information on the pricing of city investment bonds,and discuss the quality of information released by credit rating agencies.The research found that both the subject rating and the debt rating can significantly reduce the credit spread of city investment bonds,and the effect of the subject rating is better than the debt rating,indicating that the quality of the subject rating information is higher than the debt rating.After the implementation of Document 43 and the new “Budget Law”,the credit rating has more obvious impact on the credit spread of city investment bonds.The proprietary information on city investment debt ratings also has an impact on credit spreads and has information quality.When the proprietary information is more positive,it can reduce the credit spread of city investment bonds,and in the background of the market-oriented transformation of local financing platforms,proprietary credit rating information has a greater effect.In addition,in the background of the market-oriented transformation of local financing platforms,some market public information has the effect of regulating the impact of debt rating proprietary information on the pricing of city investment bond.Thirdly,in the background of “opening the front door and blocking the back door” to manage the hidden debt risk of local governments,Document 43 and the new “Budget Law” attempt to clarify the relationship between local governments and local financing platforms,and promote the market-oriented transformation of local financing platforms.In order to evaluate the effect of the implementation of policies and regulations,a double-difference method was used to study the difference in the impact of guarantee measures on the pricing of city investment bond before and after the implementation of Document 43 and the new “Budget Law”.The study found that guarantee measures after the implementation of policies and regulations can significantly reduce the credit spread of city investment bonds.In regions with better local government financial conditions,the effect of guarantee measures to reduce the credit spread of city investment bonds is better,and the market-oriented transformation of local financing platforms is easier.In addition,the effects of the implementation of policies and regulations are continuous and still valid for the second year after the implementation of policies and regulations.It indicates that the market-oriented transformation of local financing platforms is a gradual process that takes a long time.After the parallel trend test and propensity score matching(PSM)processing of the samples,the research results are still robust.Then,the new “Budget Law” gave local governments the right to borrow and raise funds in accordance with the law,and borrowing and financing took the form of issuing local government bonds.This article examines the central government’s allocation of local government bond limits by constructing a game model,and explores the impact of local government fiscal conditions on government bond limits.The study found that the central government can set up incentive and restraint mechanisms to guide local governments to disclose financial information in a timely and accurate manner,and to regulate government debt management.For the purpose of preventing and resolving the risk of local government debt,the central government adopts incentive measures to approve the issuance of higher government bonds by local governments with better financial conditions,and control the issue of local government bonds with weak financial conditions.Regions with weaker financial conditions tend to lag behind in economic development,and the central government needs to increase transfer payments and focus on supporting regional development.Finally,under the background that local governments can issue government bond to finance,this paper explores the impact of the full issue of local government bonds on the scale of regional city investment bonds,and studies the impact of government bonds and city investment bonds on regional economic growth.The results found that when the issuance scale of local government bond is larger,it will drive the large issuance scale of city investment bonds by local financing platforms,and this driving effect is mainly realized through special bonds of local governments,while general bonds have no significant impact on the scale of city investment bonds.This difference is caused by the fact that special bonds and general bonds raise funds to invest in different fields and market-oriented transformation of local financing platforms requires self-operated self-financing.In addition,before and after the full issuance of local government bond,city investment bonds can significantly promote economic growth,and neither local government bonds,special bonds or general bonds can directly promote current economic growth,but lagging in special bonds can significantly promote economic growth.In the “using” of city investment bonds,this article studies how to balance the allocation of city investment debt funds to infrastructure,nonprofit projects and other uses by constructing a multi-task principal-agent model in the situation of asymmetric information and low financial transparency of local financing platforms.It was found that the different levels of understanding of the central government on the construction of non-profit projects on local financing platforms would lead to deviations in the use of city investment bond funds and affect the efficiency of city investment bond funds.In the “repaying” of city investment bonds,on the basis of the agency model of commercial banks and local financing platforms,the central government ’s rescue behavior of local government debt was introduced to analyze the impact of the uncertainty of the central government’s rescue behavior on the behavior of commercial banks and local financing platforms.The study found that in order for local governments to adopt conservative and sound measures and policies,or to make decisions that are most conducive to society,attention should not be paid to the maximum loan size of commercial banks,but to the minimum loan size expected when local governments default.This article systematically researches the entire duration of the “borrowing,using and repaying” of city investment bonds,explores the impact of credit enhancement measures and government finance on city investment bond management,enriches existing literature on city investment bond research,expands the extension of the "borrow,using and repaying" research.And it is of great significance to prevent and resolve local government debt risks and promote the healthy development of the bond market.Firstly,it needs to clarify credit rating agencies as financial market information service intermediaries,to improve the quality of credit rating information,to reduce the asymmetry of bond market information,to improve the efficiency of bond market operations.Secondly,it is necessary to clarify the relationship between local financing platforms and local governments,to gradually promote the market-oriented transformation of local financing platforms,to weaken the local government’s implicit guarantee and expectations for city investment bonds,and to give full play to the role of city investment bonds in supplementing local government bonds to build regional infrastructure.Thirdly,in order to regulate the rational use of city investment debt funds,the central government should increase supervision of the use of city investment debt funds,and formulate a reasonable reward and punishment mechanism based on the information obtained from the supervision of investment in debt funds for infrastructure and public welfare projects,and improve the use efficiency of funds raised by city investment bonds.Finally,in order to resolve the risk of city investment debt repayment,it is necessary to improve the operating level and efficiency of local financing platforms,to screen for profitable projects and improve profitability,to establish city investment debt repayment funds and reduce the expectation of local governments to pay on their behalf.Due to limited capacity,the research in this paper also has limitations and deficiencies.Although the entire life cycle of city investment bonds is discussed,the research focus is still limited to the issue stage of city investment bonds.In the future,more research is needed. |
PDF Full Text Request