Research On The Risks And Countermeasures Of Chinese Urban Investment Bonds

Since the implementation of the1994taxation reform, the financial system inChina has become the pattern of " one level of government, one level of powers ",leading to the unequal allocation of the money and powers between the centralgovernment and the local government. Central fiscal revenue has been improved,and the local fiscal revenue has continued to decline, and with the imperfect transferpayment system and the rapid growth of the city, the funding gap of the localgovernment is increasing. On the other hand, because of the China ’s acceleratedurbanization, the demand for urban infrastructure has become increasingly urgent,and hence the bold and innovative local governments raise the money through theurban investment company in the market, and the urban investment bonds came intobeing.In recent years, the urban investment bonds showed explosive growth in theaspect of numbers and amounts. That is mainly because2008, the centralgovernment introduced the4trillion investment plan in order to resist the impact ofthe financial crisis in2008, and most money went to the infrastructure construction.Because the central government invested only a small portion of the4trillion, localgovernments have thought of various ways to finance to raise the money, and theways are as follows: the first one is selling the local land resource; the second one isto get loans from commercial banks; the third one is to establish a financing platformand to issue the urban investment bonds. For some reasons, the local government cannot sell the lands too much and get enough money from the banks, so thegovernment resort to the urban investment bonds and its credit risk is increasing. This article analyzed the urban investment company from two perspectives: thecompany itself and the local authority, and we reach the following conclusions: thegovernment level which issue the urban investments bonds is getting lower, thesize of the debt increases rapidly, the profitability power is weak, and the huge riskof the fiscal balance may lead to the systemic risk.In terms of risk prevention, we have to improve the relevant laws andregulations, establish a credit rating system, establish the credibility of the ratingagencies, reform the tax system to increase the financial revenue, and strengthendisclosure of the information, local government officials have to change thephenomenon of indiscriminate issuance, implement the joint responsibility.