A Research On The Local Government Financial Vehicle And The Factors Of Credit Risk Of City Construction Investment Bond

According to the Budget Law, local governments in China are prohibited from issuing bonds by themselves. However, the need for financing never shrinks, so the local governments are managing to find new ways to get money for their local construction plan. Since bank loan has been blocked to some extent after 2010, the so-called City Construction Investment Bond (CCIB) began to prevail to solve this financing problem.In order to issue CCIBs successfully, the local governments do their best to beautify the appearance of the representative issuers: the local government financial vehicle (LGFV). Also, the LGFVs have to do whatever asked by the local governments. Thus, the LGFVs seem like only to be "shells", and their fiscal indicators and other characteristics could be of dubious validity for judging the credit risk of CCIBs that they issued.So we may ask, when judging the credit risk of a CCIB, is it possible that we mainly focus on the local variables, and just slightly ignore variables that are related directly to the LGFV?This paper concludes that the local factors, other than the LGFV s factors, are the dominant factors that influence the CCIB’s credit risk. This paper is organized as follows:The 1st Chapter is Introduction. It presents the core viewpoint as mentioned above and shows a survey result to support it preliminary.The 2nd Chapter is the definition of concepts and literature review.The 3rd Chapter introduces the history and present situation of CCIBs.The 4th Chapter puts forward two credit cases that are caused in nature by the local governments.The 5th Chapter runs empirical tests to support the core idea further.The last Chapter is the conclusion and policy prospect.