An Empirical Research On The Influence Of Local Governments’ Implicit Guarantee On The Credit Spreads Of Urban Construction Investment Bonds

The birth and development of urban construction investment bonds cannot be separated from China’s special economic and political system.Because local governments had been forbidden to issue bonds for a long time(at present,only several local governments can be allowed to carry out spontaneous repayment of local debt pilots),the serious imbalanced financial situation prompted the rise of local government financing platform,and also gave birth to the urban construction investment bonds.In view of the inextricable relationship between financing platforms and local governments,this paper starts from the perspective of local government,which is the fundamental difference between urban construction investment bonds and other general corporate bonds,and studies the effect of local government’s implicit guarantee on the credit spreads of urban construction investment bonds systematicallyFirst of all,this paper sorts out the historical evolution and current situation of China’s urban construction investment bonds,and also highlights the significant impact of the policy environment on the development process of urban investment bonds.Secondly,this paper analyzes the theoretical mechanism of the impact of local government implicit guarantee on the credit spread of urban construction investment bonds from the perspective of the willingness and the capability of local government’s implicit guarantee.Thirdly,after controlling the factors of financing level,bond level and macroeconomic level,this paper empirically tests the impact of local government’s implicit guarantee on the credit spreads of urban investment bonds based on the sample data of urban construction investment bonds that have been issued during the period of 2009 to 2017.The empirical results show that:(1)The implicit guarantee of local governments has a significant impact on the first-level credit spreads of urban investment bonds.When urban construction investment bonds face a payment crisis,the stronger willingness and the ability of the local government’s implicit guarantee are,the smaller the debt repayment risk of urban construction investment bonds is,and thus the lower issuing costs of the financing platform is.(2)Compared with operating financing platforms,debt pricing of investment financing platforms is more sensitive to implicit guarantee factors of local governments.The non-profitable projects undertaken by the investment financing platform hardly generate cash flow,and thus the debt repayment needs to rely on local government’s financial subsidies.(3)The impact of local governments’ implicit guarantees on the secondary credit spreads of urban investment bonds is also significant.This shows that the valuation fluctuations of urban investment bonds on the secondary market are also related to the local government factors behind them.Finally,due to the central government’s resolute attitude in rectifying the local debt problem in 2018,the financing platform credits and local government credits will be completely stripped,and the expectations of such local government implicit guarantees(if any)will gradually disappear in the future.Urban construction investment bonds will face a new pricing valuation system,so this article puts forward relevant policy recommendations from the perspectives of reshaping investment logic and reconstructing the investment framework for urban construction investment bonds.