A Research On The Credit Risk Control Of Sub-National Goverment Bond

In March2011, China’s national economy and social development during the Twelfth Five-Year Plan clearly put forward that, deep the reform of the financial system, establish and improve the sub-national government debt management system, explore the establishment of issuing local government bond system. In October17,2011, the Ministry of Finance announced the2011sub-national governments to issue bonds pilot approach, and approved by the State Council, Shanghai City, Zhejiang Province, Shenzhen City, Guangdong Province, this four areas become bonds pilot and issue sub-national government bonds. In2013, approved by the State Council, expand the scope of the pilot to issue its own bonds, Jiangsu Province and Shandong province have become new issues.Taking this as the background, in China further the implementation of sub-national government bonds, and develop the sub-national government bond market, control of sub-national government bonds credit risk will be the primary task. At the present the gap of sub-national government financial revenue and expenditure has gradually become larger. Some governments have accumulated considerable debt pressure. If we do not dominant in the hidden debtor remove the circumstances, issue a large scale sub-national government bonds may make the scale of government debt out of control. so that it will bring credit risk to the government finance. Therefore, we should use the credit risk model to measure the sub-national government bond credit risk.Then, it is necessary to establish the system that can effective control the sub-national government bond credit risk.In this paper, based on the western public debt theory, public product theory, fiscal decentralization theory, taking the sub-national government bonds as the research object, we can conduct the research to the sub-national government bond credit risk control. By discussing the historical background and current situation of China’s sub-national government bonds from the United States, Japan, it explores the government issuing bonds experience. At the same time, this paper uses the sub-national government of Zhejiang province bonds as an example to empirical analysis, constructed on the basis of analyzing KMV model, and calculate the safe scale of sub-national government bonds to estimate the expected default probability. At the same time, this paper tests and analysis the reality of sub-national government bonds issuing to ensure that the bonds on credit risk control security line. The main conclusions includes the Zhejiang province sub-national government bonds issued in the control range. Assume that the local government of disposable income obeys the lognormal distribution, the probability of default is very small. Secondly, the sub-national government bond credit risk is need of attention. The credit risk and the sub-national government bonds issuing scale are closely related. With the expansion of the scale of government debt, the probability of default bonds will also increasing.Based on the research, this paper finally puts forward the suggestions in order to control the credit risk., including making bond rating to guard against credit risk; the norms of information disclosure,and perfect the supervision mechanism; establishing of a fund and improving government credit; taking into account the financial relationship, definite responsibility of power.