Summary:
Since 2015, Chinese local governments plan to issue replacement bonds to replace the financing platform debt that governments have to repay at maturity. By issuing local replacement bonds, local governments can reduce interest burden, optimize term structure, and free up more funds for key project construction. However, debt replacement is a double-edged sword, and the central government's debt relief can easily deepen moral hazard of local governments. Debt replacement reflects the central government's policy intention to bail out local government debt so that local governments have an expectation that when they encounter debt difficulties, the central government will provide assistance, thus relaxing budget constraints and leading to increased financing platform debt. Since 2015, the implicit debt of local governments has been replaced, added, and re-replaced. Does it show that the moral hazard of local government debt is difficult to eliminate？ Does debt replacement strengthen the rescue expectation of local governments, thereby having a negative impact on the moral hazard of local government debts？ What impact does financing platforms over-indebtedness have on the sustainability of local finance in the context of tight fiscal balance？To explore these issues, this paper first collates the financial data of local financing platforms from 2010 to 2019, uses two debt level indicators of asset-liability ratio and interest coverage, and uses relative estimation method and dummy variable method to measure the degree of over-indebtedness financing platforms. On this basis, with the help of the 2015-2018 prefecture-level replacement bond dataset manually collected by the author, empirical research is conducted on the impact of debt replacement on the over-indebtedness of financing platforms. The main conclusions are as follows: Firstly, the measurement result of financing platform over-indebtedness shows that the asset-liability ratio of financing platforms exceeds 7.20% of that of the general enterprises, and the interest coverage rate is only 61.43% of that of general enterprises. Since 2014, the over-indebtedness of financing platforms has shown an increasing trend. Secondly, research on the impact of debt replacement on the over-indebtedness of financing platforms has found that such replacement aggravates the moral hazard of local governments, especially the pressure of short-term debt repayment on local governments. Thirdly, heterogeneity analysis reveals that in areas with low levels of economic development, insufficient and inefficient new issuance of special local government bonds, debt replacement exacerbates the moral hazard of local government debts. Local government guarantee resources can reduce the financing costs of financing platforms and alleviate the pressure of short-term debt repayment, but can not inhibit the expansion of financing platform debt. Lastly, the extended analysis shows that debt replacement has an indirect negative impact on the fiscal sustainability of local government.Compared with the previous literature, the potential marginal contribution of this paper lies in: First, the scientific measurement of the level of over-indebtedness of local financing platforms makes up for the lack of research on the over-indebtedness of financing platforms and the moral hazard of local governments in current literature. Second, by using the replacement bond data collected and sorted out from 241 cities from 2015 to 2018 through public application channels, the relationship between debt replacement and local government moral hazard is empirically studied at the municipal level for the first time. The third is to conduct various robustness tests and heterogeneity analysis, using instrumental variable to address endogeneity problems, and rendering the empirical results more reliable and richer. In addition, the empirical evidence further proposes the economic consequences of debt replacement on the moral hazard of local governments, providing insights for improving fiscal sustainability and enhancing economic resilience.Based on the above research conclusions, this paper puts forward the following policy recommendations: Firstly, while preventing and resolving systemic risks of local government bonds, local governments moral risks should be taken into consideration. Secondly, tackle problems at their source from both short term and long term. For example, governments need to promote the market-oriented transformation of financing platforms and innovate debt eliminating method; strengthen the coordinated supervision of local government bonds and financing platform debt; improve the performance appraisal system of officials; strictly monitor local construction projects and optimize the structure of government debt.
李一花, 李林巍. 债务纾困与地方政府道德风险[J]. 金融研究, 2024, 525(3): 38-55.
LI Yihua, LI Linwei. Debt Relief and Moral Hazard of Local Governments. Journal of Financial Research, 2024, 525(3): 38-55.
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