| Local government bonds are important means of financing for local governments. The size of local government bond has risen from22.9billion to109.2billion through the past four years since2011. Although the credibility of local government bond guaranteed by local government revenues is very high, there is a certain amount of default risks, which have happened in the Western countries. At the same time, the current debt scale of China’s local government has accumulated to a huge number, which is more than$10trillion. Also, bond’s reputation represents the local authority’s credibility to a certain extent. Therefore, the credit risk of local government bonds should not be ignored under the current complicated social and economic situation, and preventing credit risks of bond is so significant.The paper proposes that there is a certain risk of default on local government bond in China, which may be cited as the expectations for the credit risk. The article researches how to control the source of the risk and how to guarantee the capacity of policy implementation by using adjusted KMV credit risk metric model. Taking Zhejiang Province as an example, the paper predicts revenues in the next few years by the model and establishes correspondence with the issuing scale, and then studies restriction of guaranteed revenues on issuing volume of bonds, so as to avoid excessive expansion of bond scale and risk accumulation. Meanwhile, through further analysis on the execution of payment, it is recommended for more improved policies, institutional constraints of the specification. Ultimately, the paper provides the theoretical and technical support for prevention and management of credit risk of local government bonds. |
