Debt Risk Assessment Of Chinese Local Governments

In recent years,china has a rapid development in economics.In order to meet the development of local economy and improve people's living standards,local governments continue to accelerate the construction of infrastructure.Because of this,the demand of local government's fund increases continuously.System of tax allocation reform in 1994 led to the local government's property rights and powers do not match and local governments cannot get enough revenue to support economic construction.Because local government debts are prohibited by the budget law,local governments have to float a loan through the local financing platform which resulted in a wide increase in the local government contingent liabilities.Although central government try to allow local governments to float a loan by themselves from 2011;the new budget law also set that the provincial government can float a loan on certain conditions and article 43 stripped of the functions of local financing platform completely,but local financing platform will not disappear immediately.Therefore,the scale of local government debt is still very large.As of the end of 2016,the scale of local government debt which bear the obligation to repay is 17 trillion and 190 billion yuan,nearly the twice in 2011.Due to the local government debt information is not open,we cannot get the real debt scale of local government.With the development of local government debt,the government has not formed a unified and effective debt-management system,and debt management is in disorder.The current local government debt's characteristics such as overall size,information opaque,unreasonable structure and nonstandard management will cause significant debt risk.Government should establish a set of effective local government debt risk assessment system to monitor and early warning of debt risk which may have important practical significance and practical value.This article will start from the evaluation of local government debt and use six steps to carry out specific analysis and prediction.First of all,the article will analyzes the background and significance of the study,and defines the keywords.Secondly,through the review and research of domestic and foreign scholars' literature,this article will analysis and summary the origin of local government debt,the characteristics and some research model.These theoretical knowledges of debt risk will contribute to subsequent research.Thirdly,this article will make a detailed analysis of local government debt from three aspects,including the development history(generation,development,reform of the tax system and gradually opening up),the present situation(debt scale,regional disparity,debt statistics,sources of debt repayment and financing sources)the causes of debt risk(financial system construction,achievement driven,debt risk management and macroeconomic factors).Fourthly,this article will do empirical analysis on local government debt risk of Jiangsu province and 13 cities by using the improved KMV model.Through the empirical analysis,we can calculate the excepted default frequency and distance to default under different debt scale from 2017 to 2019.The results show that the debt risk of Jiangsu province and its 13 cities is in a controllable range and their excepted default frequency is smaller.Fifthly,this article will puts forward some suggestions from the following four aspects:the construction of the financial system,the government financing channels,the disclosure of debt information and the implementation of policy.