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Discussion on the issuance of municipal bonds in China

Author: ZouLing ZhangWei From: www.yourpaper.net Posted: 2009-03-30 15:33:27 Read:
Abstract: municipal bonds, the city government based on the principle of credit, to absorb funds from the community to meet the needs of urban public spending as a form, is an important part of the system of government bonds. Municipal bond financing instruments as a more mature, occupies a pivotal position in the bond markets of the developed countries, the successful use of the rapid development of the municipal building will help to create a good foundation for local economic growth. China's economic development so that the growing demand for local governments on municipal construction funds, the form of corporate bonds, municipal bonds issued there all the unavoidable problems. This article, based on research at home and abroad for the literature, analysis of the current situation of the U.S. municipal bond market, from the main issue of municipal bonds, guarantees, interest rate, liquidity, interest, taxation and borrowing scale multi-angle analysis of the issuance of municipal bonds the main obstacles and propose countermeasures to meet the huge capital needs of our urban infrastructure construction, promote the development of China's capital market.
Keywords: municipal bonds, local government bonds, financing
First, the theoretical basis of the issuance of municipal bonds
(A) the issuance of municipal bonds is a reasonable need to develop sources of funding of public goods
For urban public goods, the city government can resolve its funding needs in three ways: First, through the regular budget, funded from taxes; through the regular budget, funded by taxes and municipal bonds general obligation bonds; through special capital budget, taxes and municipal bonds funded project revenue bonds (see Figure 1).

In these three ways, the first way is the taxes for the supply of public goods, the beneficiaries of public goods and the cost burden is part of the separation, that contemporary afford the full cost of present and future generations while benefiting . The second way is the general obligation bonds for the supply of public goods, due to the short-term general obligation bonds, the beneficiaries of public goods, the cost burden is unified, contemporary burden of cost, contemporary benefit. The third way is to project revenue bonds for the supply of public goods is uniform due to the long-term nature of the project revenue bonds, the beneficiaries of public goods and cost burden by present and future generations the same time the burden of cost benefit. This is because the ways consumers of public goods charges, in order to meet consumer demand. After the completion of a number of infrastructure projects, not only of contemporary people can benefit future generations can also benefit, but part of the cost of the burden on future generations. Clearly, the second way and the third way is in line with the principles of economic activity. It would be unreasonable way, is that the beneficiaries of public goods both contemporary people, but also the future generations by contemporary people, they need to bear the full cost. Moreover, with respect to the rapid economic and social development, the government's limited financial resources are always "seems inadequate, so that the supply of public goods is a serious shortage. The second way of debt to make up for the lack of financial funds from taxes, contemporary people to bear the cost of the benefit. If the debt scale control within a certain range, its future debt service pressure to bear. The third way the emphasis on cost-sharing to the benefit period debt to raise funds to help members of society in the sub-level intergenerational burden cost, and it helps to increase the supply of public goods, as well as conducive to the efficiency of the supply of public goods improved. Thus, overall, the issuance of municipal bonds not only solve the problem of inadequate funding of public goods, but also a reasonable burden resulting costs.
(B) the issuance of municipal bonds need to give full play to the role of city government
The central government at the same time provide national public goods, can also provide regional public goods. Preferences of residents between the different areas of regional public goods, however, is not the same. City government on the spatial distance, and the inhabitants of the region closer to the information more fully understand the needs of the residents of this region preferences is more convenient, which helps the city government to better implementation of regional economic policy, providing regional public goods. Relatively speaking, very difficult for the central government tax revenue from a certain region is closely linked with the interests of the region, often brought to the difference between the actual benefit residents of a certain area of ??public goods preferences, this difference may sometimes be very significant . Provide regional public goods, the city government has an advantage.
However, in the case of a flow of population and factors of production, the city government to provide regional public goods conventional capacity will be weakened. Tai Bote (Tiebout) theory, if each city government to provide public goods, assuming that residents are free to choose, and his residence select only depend on to meet their public goods preferences, where public goods best suited to the needs of his preference, he would choose to go to a place to live. [1] residents through this flow, consumer preferences for some kind of public goods, prompting the local city government to make every possible effort to provide public goods preference for local residents. Due to the presence of the flow of the residents, the city is very difficult for the Government through taxes on the liquidity factor taxation, is bound to weaken the taxability of urban resources, and the city government's ability to tax. Similarly, the city government to provide regional public goods, relying solely on the tax as a source of funds, are contrary to the benefit principle, will, in turn, the income and the burden of the cost of separation, residents now bear the cost of future residents make residents through interregional liquidity to express their dissatisfaction, the results can not be an effective supply of public goods. Borrowing can be an effective solution to this problem so that the the different intergenerational residents uniformity burden cost. Thus, the issue of municipal bonds can stabilize the local resident population, enhance the city government's ability to tax, the burden of the cost of public goods supply can also make fair, these can mobilize the enthusiasm of the city government.
Second, the role of municipal bonds to finance the construction of urban infrastructure
(A) developed countries, the status of infrastructure finance
Currently, foreign investment and financing system of urban infrastructure has diversified, market-oriented direction of change, but the role of government in infrastructure construction still can not be ignored. Municipal bonds in the United States, Britain, France and other Western countries is a mature, high credit rating, financing tools, local governments to raise funds for construction of infrastructure, so as to ease their own financial pressures way.
Municipal bonds in the United States starting in the 1820s, its size, rapid development in the post-war municipal revenue bonds developed more rapidly since the 1970s, has accounted for more than 50% of the total proportion of municipal bonds (see Table 1). To strengthen the risk management of municipal bonds, the United States implemented a credit rating, credit upgrade and municipal bond insurance and other measures. To promote the development of the municipal bond market, the U.S. federal government and local governments for the purchase of municipal bond interest income exempt from income tax. By means of this series, the U.S. municipal bond credit rating, liquidity and market capacity has been strengthened, so that municipal bonds become the main source of funding of U.S. urban infrastructure construction.

Table 1 of the U.S. bond market structure
(Unit: $ 1 billion )

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Municipal bonds (the market weightings%)

Government bonds

Mortgage debt

Corporate bonds

Federal agency bonds

Money market bonds

Assets bonds



1293.5 (11.52)









1296.0 (10.73)









1318.7 (10.10)