Risk Measurement And Warning Of Local Government Debt In China

In the report of the 19th National Congress of the Communist Party of China,general secretary Xi Jinping stressed that we should enhance the awareness of potential dangers,improve the ability to prevent and control risks,adhere to the bottom-line thinking,put preventing and defusing major risks at the top of the three major battles,and deal with financial risks is a key step in this battle.With the rapid development of local economic construction in China,local government debt has become one of the effective ways to raise funds for infrastructure construction and relieve financial stress,playing an important role in industrialization and urbanization.But,in recent years,local governments have continuously increased the issuance of local government bonds,and various financing platforms have sprung up.As a result,the debt repayment pressure of local governments has gradually increased.Obviously,excessive debt risks will bring negative impact on the stable operation of financial economy,so local government debt risk urgently needs to be solved.Based on the analysis and summary of the domestic and foreign research results on local government debt risk,this paper measures the local government debt risk of all provinces in China from two aspects:the default probability of local government debt and the risk premium of interest rate term model.Firstly,in the KMV model,we added government-managed fund income,hidden debt and other factors to predict the default distance and default probability of the local government debt of all provinces in China.Secondly,the dynamic Nelson-Siegel interest rate term model is used to predict the risk premium of local government bonds and national bonds byselecting the transaction data of local government bonds of provinces in the inter-bank bond market.The empirical results show that under the background of a large number of hidden debts,the provinces in China are under great debt repayment pressure,and the probability of default is high in some areas.At the same time,from the perspective of interest rate term structure,the debt risk performance of different regions in China is different.The risk premium of local government bonds in the developed coastal areas is relatively low,while the risk premium of local government bonds in the central and western regions and most provinces in the north is relatively high,which deserves our attention.