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【Tao Kunyu】Assessing Local Government Debt Risk in China—a Case Study of Local Government Financial Vehicles

作者:     日期:2016-03-17    来源:

Tao Kunyu, the teacher of School of Finance, published an article “Assessing Local Government Debt Risk in China—a Case Study of Local Government Financial Vehicles” on China & World Economy in the fall of 2015. The problem of government debt is a problem that the theoretic area and the governments both concern now. The local government debt in China grew rapidly from 2009 and the challenge it brings to the fiscal risk and the systematic stability of macro finance arouses the scholars, financial institutions and governments’ closely concern. This article bases on the analysis of China local government debt risk formation and its spread mechanics, combines the western traditional credit risk modal and Chinese economy characteristic variable, uses micro financing platform corporations’ financial data, local governments’ fiscal balance of payments information, real estate market’s periodicity and the variable of economy development, constructed a multidimensional risk measure system for local debt and arises the modal for the best scale of the local debt.

We use the information from the platform company which publicly issued debt, construct the corporations sample of the local financing platform. This sample’s total debt counts more than 60% of the local financing platform in China. We combine the corporations’ financial data and local governments’ fiscal variable, using the improved Z-score modal to research the individual risk of platform company and its distribution. The research shows that in recent five years, the platform company’s repayment ability is descending. Meanwhile, the significant difference between location exists. Though the eastern area exists more platform company but the risk is commonly lower than those in the western area. Furthermore, compared to the province level financing platform company, the city level and county level local financing platform company have a higher risk level.

The platform companies’ debt shows the governments’ financing demand in fact. So we can convert the default risk of the financing platform companies to the local governments’ fiscal risk. We took the local governments’ fiscal income’s structure and sustainability into concern and used KMV modal to estimate the risk level of the province level governments. We found with the measure of the total debt level, the debt risk of 2014 is controllable. But it is near the safety threshold. Also, the risk distribution shows difference between area, which the western area and middle area is significant higher than the eastern area.

At last, this research is extent from the analysis of the situation to the future risk response. Due to the problem of the local government’s cash shortage in the accelerating of the urbanization, we used the variable of fiscal income, government asset, land market and economy development, designed an estimate modal for the local government’s best debt scale which is suitable for china fiscal system and the demand of the economy development and arose the policy suggestions to solve the local debt risk and build a long term sustainable local government financing approach,

This research is a systematic research for the China local government debt risk. It used the micro corporation data and government fiscal information, based on the debt evolution, analyzed the risk existed and designed best debt scale and structure modal for the local government in the future. It has innovation in theory and remedied the other researches’ modal problem. In empirical area, this article improved the problem of the lack of research sample, data and variable. It has a significant realistic effect on the solve of local debt, keep the fiscal safety and financial stability, help the economy grow continuous and stable.