The Research on the Impact of China’s New Budget Law of the Market Process of Local Government Bonds
Journal of Finance and Accounting
Volume 6, Issue 1, January 2018, Pages: 18-25
Received: Feb. 23, 2018;
Published: Feb. 24, 2018
Views 1383 Downloads 81
Tao Wang, The School of Public Finance and Taxation, Central University of Finance and Economics, Beijing, P. R. China
Zhi-qi Zhu, The School of Economics, Tianjin University of Finance and Economics, Tianjin, P. R. China; Chinese Academy of Fiscal Sciences, Beijing, P. R. China
Ke Gao, The School of Public Finance and Taxation, Central University of Finance and Economics, Beijing, P. R. China
Xiao-jing Hao, The School of Public Finance and Taxation, Central University of Finance and Economics, Beijing, P. R. China
Follow on us
With the implementation of the New Budget Law in 2015, the "front door" for the issuance of local government bonds has been opened and hundreds of local bonds have entered the bond market. However, whether the New Budget Law really enhances the marketability of local government bonds, this has been a common concern of all walks of life. Since there is no discount or premium on the local government bonds issued in China at present, the market-based pricing of the issue interest rate is the main index to measure the degree of marketization of local bonds. This paper firstly summarizes the relevant factors that influence the interest rate of local government bonds under the condition of marketization, and then analyzes the impact of these factors on the interest rate of local bonds around 2015 by means of empirical ways, to determine whether the degree of marketization of local bonds is affected by the New Budget Law. The results of regression analysis show that under the condition of keeping other factors unchanged, the new budget method has a significant positive correlation with the local debt issuance rate as a dummy variable, which shows that the implementation of the new budgeting law has indeed affected the issuance rate of local bonds. In the regression of local bonds issued before and after 2015, comparing local debt bond characteristics variables with local debt issuer characteristic variables, this article finds that except for local bond issuance, other variables are significant in both regression, The effect of local bond issuance on the interest rate of local bonds after the implementation of the New Budget Law becomes significantly positive. This shows that the degree of marketization of local government bonds has been somewhat enhanced after the implementation of the New Budget Law.
Local Government Bonds, Marketization of Interest Rates, New Budget Law
To cite this article
The Research on the Impact of China’s New Budget Law of the Market Process of Local Government Bonds, Journal of Finance and Accounting.
Vol. 6, No. 1,
2018, pp. 18-25.
Gu Sheng-zu, Liu Wei, Zhuang Qin-qin. (2015). New "Budget Law" and Prevention and Control of Debt Risks of Local Governments. Development, 1, 9-11.
Gu Sheng-zu, Liu Wei. (2014). Implementing the New Budget Law urgently needs to improve the local debt governance mechanism. Financial Research, 12, 2-7.
Sun Bo. (2014). Regulating local bonds must be market-oriented and transparent. Economic Guide, 1, 6.
Jia Kang. (2014). Breakthrough of "Budget Law" on local government bonds. China Finance, 22, 21-22.
Yuan Zhi-hui. (2015). Liao Ning debt bids, TianJin debt successfully issued, local debt issuance of the initial market-oriented characteristics. China Economic Weekly, 33, 69.
Wang Li-ying, Sun Yi-fan, Xu Bo-wen. (2014). Study on the risk control in the marketization of local debt in China. China Tianjin.
Zhang Hai-xing. (2001). American and Japanese local government bonds and Its Enlightenment. Research in Finance and Economics, 2, 42-45.
Nakashima K, Saito M.(2009). Credit spreads on corporate bonds and the macroeconomy in Japan. Journal of the Japanese and International Economies, 3, 309-331.
Krugman, P. (1988). Financing vs. Forgiving a Debt Overhang. Journal of Development Economics, 3, 253–268.
Han Li-yan, Zheng Cheng-li, Luo Wen, et al. (2003). Study on the credit risk and bond issue scale of Chinese municipal bonds. Financial Research, 2, 85-94.
David Romer. (2014). Advanced Macroeconomics (Fourth Edition). Shanghai University of Finance and Economics Press.
Fisher L. (1959). Determinants of risk premiums on corporate bonds. The Journal of Political Economy, 217-237.
Yang Ping, Li Bo. (2015). Market-oriented reform of interest rates from the perspective of the issuance of bonds in cities. Southern Finance, 2, 72-82.