| With the implementation of the new Budget Law in 2015,local governments have officially entered the stage of issuing bonds on their own.As a "front door" tool for local government financing,special bonds play an important role in coping with the impact of the epidemic and resolving local debt risks.As the active fiscal policy continues to take effect,the issuance of special bonds has accelerated significantly,becoming an important financing tool for infrastructure construction to make up for shortcomings and increase leverage.Reflecting on the practical level,in just seven years,the issuance scale of new special bonds in China has expanded 37.3 times,rapidly rising from 95.9 billion yuan in 2015 to 3.58 trillion yuan in 2021.The central government relies on the issuance of new special bonds to supplement the liquidity of local governments,with a view to driving economic recovery in specific industries and fields through incremental special bond funds,and leading the overall economy to resume normal operation with a point.Under such circumstances,it is important to clarify the risk potential of local government special debt and grasp the efficiency of the use of special debt to improve the debt management system so that it can give full play to the role of short board and stable investment,and also help to further identify risks and avoid risks.Taking the formation of traditional off-balance sheet debt risks as a reference,the current management framework of local government debt places special emphasis on the status of provincial governments in debt management.Considering that local and municipal governments are the most important debt-bearing entities in China,this paper focuses its research perspective on the debt-raising behavior of local and municipal governments.Generally speaking,the debt raising process of local and municipal governments involves applying for a quota and then issuing debt.First,at the application stage.Local municipalities cannot decide the scale of debt raising and financing projects on their own,but have to pass the strict approval of provincial governments,similar to the administrative approval system led by provincial governments;second,at the issuance stage.The approved scale of debt raising cannot be issued by local municipalities on their own,but must be issued through the provincial government on their behalf,and then transferred to local municipalities.In terms of policy advocacy,the above restrictions can indeed play a controlling role on the aggressive debt raising behavior of grassroots governments,and the ex-ante reserve of projects can also guarantee the efficiency of the use of debt funds to a certain extent.However,in practice,it is still unclear whether the risk control design of special bonds is reasonable and whether the capital efficiency is fully released.Based on the above background,this paper focuses on the research of special debt,mainly doing the following work and drawing several main conclusions.First,this paper analyzes the issuance trend of special bonds and the basic characteristics of special bonds since local governments issued their own bonds in 2015 using prefecture-level municipal debt data and project-level data.The results show that both the scale of special debt financing and its share show a rapid upward trend,and the share of new special debt has been as high as 70% in 2017,taking the annual issuance of special debt(including new,replacement and refinancing)as the reference benchmark,indicating that along with the basic completion of replacement work,new special debt has become the main body of local debt.In terms of specific investment areas,the current focus is on transportation infrastructure,municipal and industrial park infrastructure,security housing projects and social undertakings.At the same time,along with the rapid expansion of special debt,the corresponding debt service pressure has also increased significantly.At present,the principal of maturing special debt is mostly renewed by issuing refinancing bonds,while the interest of debt is repaid through the government fund budget income.In terms of regional heterogeneity,the interest payment pressure in the central and western regions as well as the northeastern region is much greater than that in the eastern region.Based on the above characteristic facts,it is important to accurately identify the effect of special debt funds on the ground.If the effectiveness of special debt is not fully released,it will increase the financial burden due to the debt interest expenses,which will bring a series of negative problems.Second,based on the quota management requirement of "coordinated allocation" by provincial governments,this paper studies the distribution characteristics of the quota under the coordinated allocation by provincial governments.The lack of predictable and clear rules for the administrative allocation of quotas,coupled with information asymmetries among different levels of government,may lead local governments to take advantage of their location to fight for them.This paper finds that the limits of prefecture-level municipalities adjacent to the provincial capital city(the seat of the provincial government)are significantly higher than those of other regions,and that the limit allocation effect of this locational advantage is more pronounced in regions with high incentives for official promotion,high fiscal revenues,and low debt ratios.The findings remain very robust after considering competing hypotheses such as differences in project quality,the development needs of the prefecture-level municipalities themselves,and the need to raise debt.The paper further finds that geographic distance increases the level of limits in neighboring regions mainly by acting on the efficiency of information transmission between vertical governments and the breeding of rent-seeking activities.In addition,the Interim Measures on the Allocation of New Local Government Debt Limits further clarify the allocation criteria and the corresponding penalty mechanisms,which increase the predictability of allocation while also raising the cost of rent-seeking,and to some extent correcting the biased allocation effect brought about by locational advantage.Again,based on the institutional arrangement of "issuing and repaying on behalf of provincial governments",this paper studies the impact of provincial governments’ invisible credit backing on the pricing of special bonds.Theoretically,by forming a risk-matching debt pricing mechanism,local governments’ investment and financing behavior can be optimized.However,this paper finds that the current credit enhancement of provincial governments affects the judgment of market investment agents on the risk of municipal government debt raising,making it difficult to form a correct risk premium,which is not conducive to the functioning of market mechanisms.Specifically,the lower the prefecture-level municipality ranks in the province,the stronger the market’s belief in the provincial government’s guarantee,and the greater the degree to which the corresponding prefecture-level municipality faces an underestimated risk premium.The paper further finds that this effect mainly occurs in regions with more new limits and fewer rollovers.In addition,to further reveal the possible risk potential of credit distortion,this paper also provides factual evidence about the bond repayment schedule and the collocation characteristics of special debt projects.Finally,this paper extends the research perspective directly to the efficiency of the use of special bonds,focusing on the relationship between special bonds and economic growth.Ultimately,the risk potential of the above discussion is that the above institutional arrangement may not be able to allocate funds efficiently through market forces,which may lead to inefficient local investment and result in higher debt risk.To this end,this paper further examines the efficiency of the current actual use of special debt funds.The paper finds that there are regional differences in the impact of new special debt on economic growth,and only in the eastern region does special debt work,as shown by the fact that for every 1% increase in the ratio of new special debt to GDP in a city,the regional economic growth rate increases by about 0.3% on average;while in the central and western regions the impact of new special debt on economic growth is not obvious.At the same time,in regions with less pressure to pay interest,special debt funds have a more prominent role in promoting economic growth.The research in this paper provides support for understanding the development trends of special bonds since local governments issued debt on their own,and provides ideas for understanding the formation mechanism of special debt risk potential and its impact from the perspective of administrative constraints.In the context of accelerating the scale of special bonds to boost high-quality economic and social development,the findings of this paper suggest that the initial intention of the constraint mechanism led by provincial governments is to strengthen debt risk management,but precisely because of this administrative configuration,the motivation of localities to fight for the limit is stimulated to a certain extent.Coupled with the arrangement of misplaced borrowing subjects,it is difficult to optimize the efficiency of the use of debt funds,which does not bring long-term impetus to the high-quality development of regional economies,but may instead increase the local financial burden or trigger the risk of debt repayment,which is obviously contrary to the policy objective of special debt.From the perspective of giving full play to the effectiveness of special debt and preventing debt risks,it is necessary to strengthen project review and make good preparatory work to ensure that projects are landed as soon as possible and form physical workload,on the other hand,to strengthen the performance management of government debt,to compact the main responsibility of performance management and to improve the efficiency of the use of government bond funds.The future reform of the debt management system should further promote the shift from administrative constraints that focus on risk prevention and control to market constraints that balance risk prevention and control and debt allocation efficiency.Gradually try to sink the main body of local government bond issuance to the grassroots government with the ability to raise debt.By forming a pricing mechanism that matches the risk of debt,market forces will be used to determine a reasonable level of local debt,unify the main body of issuance with the main body of debt repayment,implement the matching of authority and responsibility,and fundamentally improve the efficiency of debt use. |
