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Risk and Prevention of China opening up local government bonds

Author: WeiZhi From: www.yourpaper.net Posted: 2010-03-14 08:29:42 Read:
Abstract: opening up local government bonds for the construction of urban infrastructure and the implementation of the strategy "to maintain growth provides a new means of financing. The pattern of economic restructuring, the financial markets of the issuance of local bonds lies in the risk control.
Keywords: local bonds; Bond Risk: Risk

As an important measure to cope with the international financial crisis, the expansion of domestic demand growth, the Chinese government officially announced that two of the country this year, agreed with the local government issued 200 billion yuan of bonds issued by the Ministry of Finance into provincial budgets. This means that academic years of concern to the open local bonds, big ideas to solve the debt problems of the local government reform, is being officially adopted and gradually surfaced.
Local government bonds, also known as local government bonds, municipal bonds, securities issued by the local government or its authorized agency, the funds raised for the construction of municipal infrastructure and public welfare projects. The current budget law prohibits local governments to issue bonds and budget deficits. However, the local government liabilities is an objective fact, is the deep-seated contradictions and institutional issues of economic reform and institutional transformation occurs during to prohibit only issue local bonds, and can not effectively put an end to the city government's liabilities behavior, but will make these hidden liabilities drifted outside the system, not only to breed a large number of illegal activities, also become triggered major hidden the local financial risks and financial risks. The old saying goes, blocking as dredging permit and regulate the city government bond issue is the fundamental solution.
"Capital growth" critical period, the opening up of local government bonds for local governments to provide an important financing channel. The issuance of local government bonds, however, is a complex system engineering, allow local governments to issue bonds will face enormous risks in the specific historical context of China's economic transition, if you can not be effective to prevent in advance, will give the Chinese government's financial security pose a serious threat.

A risk analysis of China opening up local government bonds

In the specific historical context of China's economic transition, to allow local governments to issue debt also facing unite in risk, that is, not only with respect to the issuer in terms of market risk, the risk relative to government debt. For government decision-makers, emphasizing the need to consider the credit risk incurred by the local government to issue local bonds. Although China is not yet a standard local government bonds, but can be seen through the quasi-local government bonds issued over the past practice, Chinese local governments lack of credit is a more serious problem. For example, in 2003 the Audit Commission found in the audit and investigation of the country's 12 major airports and 38 regional airports, nine losses in 12 major airports, the six airports serious losses. 38 regional airports, 37 losses, some airports have insolvent, and some even have been forced to cease operation. The problems encountered by the airport, basically due ahead of construction, blind investment, and did not conduct the necessary analysis of the actual needs of the local. If these projects financed by local governments to issue bonds to raise, is bound to cause huge credit risk due to the project poor management, lack of income and
Both market economic risk arising from the credit risk faced by local governments issued local bonds, also caused by China, the existing structure and system defects, including the following aspects:
(A) the objective existence of the risk of market economy
Areas of investment in local bonds investment in large-scale infrastructure and construction of public utilities, these projects have a long investment cycle, effective slow, difficult to accurately grasp the benefits of government investment in local bonds and higher risk. At the same time, the local government bond future debt service funding sources also influenced by many factors, such as macroeconomic volatility, and management of investment projects, changes in interest rates, as well as natural factors, so there is a certain degree of uncertainty. The event of a breach of local bonds, will increase the financial burden on local government, especially in the current downward trend due to the influence of the world will be a financial crisis, China's local fiscal revenue, which further increase the risk of local government debt.
(B) economic system analysis
Due to historical reasons, the functions of the local government dislocation financing misappropriation easily lead to a certain extent. China is in a period of transition from a traditional planned economic system to a market economy, the relationship between the government and the market as well as the government and enterprises has not been adjusted in place by inertial effects of economic management under the planned economic system, local governments are mostly interested in "alternative markets" rather than "market" outstanding performance is a large number of financial funds to invest in competing projects may lead to higher earnings, on the one hand, the government of the exit areas that are not promptly withdraw, on the other hand, the government should fulfill public functions such as the provision of infrastructure, education and social security must also enter and be guaranteed as far as possible. It is the local government of the existence of this "offside" and "Absence" make up, resulting in the scope of the functions of the local government is too wide, financially, not only the original fiscal expenditure has not mitigate, and has a new fiscal spending priorities, in the case of insufficient funds, it is difficult to ensure that the funds raised by issuing bonds can reasonably use to municipal infrastructure and will not be misappropriated.

To strengthen the supervision of local bonds, credit, 1975, the United States enacted the Securities Act Amendments of 1975, and local bonds included in the custody of the 1934 Securities Exchange Act. Meanwhile, the United States set up the Local Government Bond Ordinance Development Board (MSRB), responsible for the overall supervision of the local government bond market and proposed regulatory proposals, the proposal final decision in the Securities and Exchange Commission, and ultimately by the regulatory agencies of the United States Association of Securities Dealers and bank specific implementation. Another major regulatory agencies, United States Securities and Exchange Commission market surveillance set up by the Ministry of Local Government Bonds office (OMS), The first is based on the antifraud provisions of the post supervision, including the supervision of all participants of the local bond issuer, underwriters, intermediaries main means ordered to make corrections, fines and litigation; or commissioned to develop the constraint local bonds issued participant behavior rules, required to participate in the information disclosure obligations, enabling the supervision of local bonds.
In addition to the above-governmental organizations, the audit, lawyers, credit rating, insurance companies (Ho1ly, 2000) and many other intermediaries, regulatory credit risk in municipal bonds also plays an important role. The issuance of municipal bonds in the United States must be accompanied by the legal opinion issued by the lawyer or law firm, the declaration bonds have been lawfully issued, is binding on the debt. In 1981, the American Stock Exchange (BEC) formally approved the first local bond disclosure bill audit institutions in the United States began the supervision of local bonds. Disclosure of adequate security for the information, content specification, real, audit institutions established for this purpose a set of authoritative accounting standards. U.S. District bond credit rating assessment by commercial rating companies. Rating suborn "behavior is relatively rare in the United States. Rating results are basically fair. Currently, the United States engaged in the local bond rating agencies Moody's and Standard & Poor's.
Management of local government bonds also need to establish a scientific risk warning mechanism. Establishment of an early warning system a certain deterrent effect on the risk of moral hazard, sometimes more binding than the market rules. Most states local government has a mechanism for preventing local debt risk, such as Ohio called local fiscal monitoring plan, monitoring and early warning system, practiced on the the local political essays network http://www.100paper.com House financial monitoring and emergency response mechanism to monitor the size of local government debt. More than 1/12 of the area of ??the current fiscal revenue of the size of the deficit, to provide early warning. Once a local government declared a fiscal crisis, the state should set up a body to oversee and control the local government financial management of a financial plan and Oversight Committee. Within 120 days after the first meeting of the Committee held, the chief executive officer of the local government must submit to the Commission a detailed financial reform plan, as well as to take measures to deal with and resolve the crisis.
(B) Japan Local Government Bond Risk
Japan guard against and defuse financial risks of the local government to fundamentally improve intergovernmental fiscal relations, reform and improve the income and expenditure responsibilities of central and local government system, has been committed. In addition, the Japanese government has also taken other measures to defuse financial risks, mainly to broaden the range of investors, to modify laws and regulations, the introduction of a series of tax policy, to enhance the capacity of local government financing.
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