1、 Background analysis
With the continuous deepening of China's tax sharing reform, the central finance has maintained a sustained and steady growth, providing a reliable material basis for the development of national economic and social construction. At the same time, the reform of tax sharing system has affected the financial revenue of local governments. Due to the continuous upward movement of local finance and the continuous decentralization of powers, the jurisdiction of local governments is becoming larger and larger, but in the case of insufficient financial resources, it is difficult to ensure the steady and rapid development of regional economy and society. In order to effectively provide public goods, local governments have to borrow foreign debt, which exacerbates financial difficulties. At this stage, the role of local governments in borrowing has a positive side, but if the debt burden is too heavy, it will affect the overall development of the entire national economy to a certain extent, and become a "burden" of the central finance. Therefore, strengthening the debt management of local governments and preventing the financial crisis of local governments are issues that we cannot ignore at this stage.
2、 Causes of financial difficulties of local governments
1. The financial system is not perfect, and the financial power and administrative power are seriously asymmetric
After the reform of the tax sharing system, in addition to the central and provincial governments, the financial system is very different among local governments at all levels, especially the county and township governments, which are very irregular. Due to the asymmetry between administrative power and financial power, the financial power is constantly moving upward and decentralized, resulting in local governments bearing the cost of many external public goods that should have been provided by the central and provincial governments under the condition of insufficient financial resources, thus increasing the financial burden of local governments.
2. The legal system is still imperfect and cannot provide strong legal support
At present, there are two laws involving local government debt in China, the budget law and the guarantee law.
First, as far as the budget law is concerned, its defects mainly include: first, from the perspective of budget management, the living space of local government debt is not within the budget, which makes the provision of the budget law that local governments do not list deficits when preparing the budget meaningless. Second, due to the defects in the provisions of the budget law on the budget implementation process, the budget adjustment is very random, which is divorced from the supervision of the National People's Congress; Third, local governments are prohibited from issuing bonds, but other forms of borrowing are not explicitly prohibited. In the absence of legal direct financing channels, local governments can only carry out liabilities through flexible means or illegal operations.
Second, the guarantee law clearly stipulates that state organs should not act as guarantors, but in practice, they cannot form effective legal constraints on government departments and creditors, resulting in a large number of guarantees and disguised guarantees.
3. There are defects in the supervision and restriction mechanism
At present, the debt management system of local governments in China is relatively chaotic. There is neither a unified debt management organization nor a unified responsibility and right relationship between borrowing and repayment, and even the borrowing, use and repayment of debt are divorced from each other, resulting in the loss of control of local government debt.
4. No distinction between government and enterprise
China's local governments have always had a joint relationship with state-owned enterprises and banks. Most local governments have a special preference for the development of local enterprises, and even provide loan guarantees to financial institutions or creditor's rights subjects, which leads some enterprises to relax their vigilance to the operating conditions. When they go bankrupt, they will involuntarily think that local finance should cover the bottom. Some governments forcibly intervene in the management of market economy, use policies to suppress market cultivation, distort market prices, and seriously undermine market order. It can be said that the development of local enterprises not only does not promote the development of regional economy, but also increases the debt burden of local governments.
3、 Suggestions on resolving the financial difficulties of local governments
At this stage, if local governments in China do not borrow, the development may not be very rapid. To a certain extent, the basis plays a positive role in local governments, but the scale and extent of debt need to be supervised and controlled.
（1） Improve and strengthen macro fiscal policy
1. Reasonably divide the administrative power and financial power, and innovate the financial system. In the context of the reform of the tax sharing system, the central government should reasonably divide the administrative and financial powers of governments at all levels to make the two adapt. The superior government shall not arbitrarily transfer the right to provide public goods and services that the government at the same level should undertake. If the power of the superior government is transferred to the subordinate government, it shall ensure that the funds are in place in time to ensure that the local government fully exercises its financial power; Deepen the reform of the financial system and gradually carry out institutional innovation, and formulate policies for different regions and departments according to the actual situation.
2. Formulate medium and long-term development strategies and expand the financial resources of the region. Local governments should formulate medium and long-term strategies according to the actual situation of regional financial development, realize the management and repayment of debts in different periods, realize the overall planning and effective control of debts, and expand the financial resources of the region through stable debt management during the development planning period.
（2） Refine the debt management system of local governments and realize the benign development of Finance
1. Improve the centralized management system. We should emphasize the role of the financial department, that is, we should further clarify the dominant position of the financial department in local governments at all levels, strictly review the use of debt funds of the governments at the same level and subordinate departments, and it is necessary to establish a special department for debt management, unify the entry and expenditure windows of debt, realize the centralized and effective management of debt funds, improve the centralized management system, and clarify unified statistical data, Unified statistical caliber is a prerequisite for the application of local government debt monitoring indicators and the establishment of debt early warning mechanism.
2. Establish a debt repayment mechanism. On the one hand, classify and verify existing debts and gradually digest debts. According to the different nature and types of debt, we should make reasonable arrangements for the future planning of the sinking fund by means of transfer payment, repayment plan, and the reorganization method determined by the government and creditors through consultation. On the other hand, strengthen the supervision and control of local debt. It is mainly to strengthen the supervision of contingent liabilities, effectively control contingent liabilities in advance, ensure the guarantee of the government, control the scale of contingent liabilities transformation, reduce the possibility of external market risks transforming into government risks, and improve the reputation of the government.
（3） Establish a debt risk early warning system
Conduct a comprehensive survey of the debt situation of local governments,. Of course, to comprehensively reflect the operation of government debt, we also need to establish a local government debt risk index, mainly for the direct explicit debt of the government. The specific indicators are: new debt default / total local fiscal revenue, which reflects the liquidity of local finance. Debt risk first manifests itself as liquidity risk. When fiscal revenue cannot meet the needs of fiscal expenditure, it has the greatest impact on local fiscal risk; The balance of overdue debt of local finance / total income of local property, as a supplement to the liquidity and solvency of local finance, the latter two indicators mainly reflect the long-term payment demand and total debt. When measuring the risk of government debt, the three indicators should be given different weights, and the specific weights should be determined according to the actual situation of the region.
（4） Straighten out the relationship between government, market and enterprises
In dealing with the relationship between the government and enterprises, the main body of debt repayment of enterprises should be clearly stipulated in the form of law. When an enterprise has a business crisis, the local government can come forward to coordinate, but do not intervene excessively to reduce the dependence of enterprises on the government; In terms of the relationship between the government and the market, we should change the functions of the government, gradually withdraw from the competitive field, minimize the intervention in market behavior, and correspondingly intervene in the field of public services, shift the focus of work to the economic construction of the region, and provide more and better functions for the region to provide goods and public services.
（5） Allow local governments to issue securities conditionally
In the process of China's transition to the market economic system, under the condition of limited financial resources of the central and local governments, it is inevitable for local governments to borrow. Otherwise, local economic construction and social development cannot be consistent with the pace of national economic development, which will inevitably affect the overall interests. Therefore, the current goal of local governments is not to eliminate debt, but to gradually control debt and make effective use of it. Local governments should be allowed to issue municipal construction bonds conditionally, and local bonds need to be strictly approved with strict conditions. This can improve the transparency of government finance, make implicit debt explicit, increase the government's financing space and channels, and effectively avoid all kinds of illegal debt raising behaviors.