The Study On Credit Risk And Its Factors Of The Quasi-municipal Bond

Since1994China has started the reform of the tax system, which largely reduced the local government fiscal revenue. However the local government is still mainly responsible for the provincial public spending, leaving a huge gap between fiscal expenditure and revenue.In response to The2008global economic crisis, China government initiate ’The Four Trillion Stimulation’, heavy invested in local infrastructure construction. In2009the scale of annual loan explosively increased. Meanwhile in March2009, the people’s Bank of China and China Banking Regulatory Commission jointly proposed that "They support local governments to initiate financing company, issuing corporate bonds, medium-term notes and other financing instruments." Since then the local government financing company emerged in large numbers, and quasi-municipal bonds experienced an explosive growth.The rapid increase of the quasi-municipal bonds effectively solved the financing dilemma of local government, which played an important role in supporting the local infrastructure, low-income housing construction and local economic development. However due to the absence of relevant laws and regulations, there were many problems during the development process of the quasi-municipal bonds.Empirical study shows that, among three kinds of factors proposed in this paper (1.the issuer’s credit risk factors,2.the credit risk factors of the local government,3other influence factors), credit risk of the issuer itself showed no significant effect on the quasi-municipal bonds’ credit spreads, while the local governments’ credit risk and other influence factors show more obvious influence. The nature of the business of the local government platform Co determines its weak profitability and instable cash flow, its debt repayment funds could only resort to the local government. The local governments support the local platform Co in many ways, such as financial subsidies, tax incentives, hidden guarantee, to insure its debt repayment. Therefore, credit risk of the quasi-municipal bonds and the local government financial statement has a strong negative correlation. In addition, the credit rating, guarantee, government levels and put option also have significant effect on credit spreads.