Research On The Market Liquidity Of China’s Local Bonds

In 1994,China began to implement the tax-sharing fiscal system reform,which solved the problems of the central and local governments in the fiscal distribution relationship,and rationally placed them under the responsibility of the central and local governments,and the local government’s fiscal revenue declined year by year.Correspondingly,the financial expenditure that local governments need in the process of urbanization construction are increasing.In the face of the increasing demand for local government revenues and expenditures,the central government has given certain financial subsidies to local governments through transfer payments and other measures.On the other hand,it has successively transferred loans through government bonds,“returning on behalf of generations” and “spontaneously Self-return “pilots and “spontaneous self-sufficiency” measures across the country have opened up the channels for local governments to expand funding sources and opened the door for local governments to use government credit as a guarantee to raise funds for urbanization.At present,local bond has become the largest bond issue in China’s bond market.Corresponding to this is the liquidity dilemma of local bonds in the secondary market.Compared with the same kind of national debt and urban investment bonds,local bond flows have the lower mobility.This paper is based on the domestic securities market,through the comparative study of the transaction data of Medium-term notes,corporate bonds,local bonds,short-term financing bonds,financial bonds,interbank deposit certificates,government bonds and other securities in the secondary market,selects the ratio of liquidity and turnover of Hui-Heubel as the measurement index of liquidity in the secondary market and found that China’s local bonds in the secondary market Liquidity levels are generally lower than other bond types in the bond market.The liquidity index of each kind of securities in China’s securities market is based on the provinces,municipalities and autonomous regions.The level of local bond liquidity in each province and autonomous region is measured.The current situation of China’s local bond liquidity is analyzed from the two dimensions of time and space.Then,this paper analyzes the factors affecting the liquidity of local bonds based on the factors of Local government financial status,local bond characteristics variables and local macroeconomic conditions.The study found that the fiscal revenue and fiscal expenditure reflecting the local government’s financial resourcesreflect the dependence of local governments and local commercial banks on the ratio of local government financial deposits and financial deposits to domestic deposits,which have a significant impact on the liquidity level of local government bonds.Based on the analysis,this paper proposes relevant policy recommendations based on the status quo and system status of China’s local bond market.Specifically,it includes: First,deepen the reform of the fiscal system,proceeding from the rationalization of the central and local government’s power and expenditure responsibilities,the design of local tax types,and the renewal mechanism of local government bonds,especially deepening the tax-sharing reform.This is also the promotion of local bonds.The top priority of the marketization process.Second,deepen the marketization of local government bond issuance,and comprehensively promote the marketization of issuance in terms of both the issue variety and the market-issued issue rate.Third,improve the secondary market construction of local government bonds,especially improve the market maker system and the local government’s information disclosure system.