Summary:
In recent years, the rapid expansion of local government debt has become a substantial threat to financial stability and economic growth. The financial strain induced by the COVID-19 pandemic has exacerbated these tendencies, further elevating the risks posed by implicit debt to China's financial system. In response to these challenges, the Ministry of Finance has implemented several debt management policies aimed at diminishing market expectations of government bailouts and controlling the disorderly expansion of financing platforms. This study examines the relationship between implicit government guarantees and credit enhancement mechanisms within the bond market, particularly under evolving bailout expectations. This paper explores how market-based credit enhancement mechanisms can serve as alternatives to implicit government guarantees, promoting greater transparency in bond pricing and reducing financing costs. The study further analyzes the distinct roles of implicit guarantees and credit enhancement at various stages, revealing the shift from reliance on implicit government support to market-driven credit enhancement strategies, and thoroughly discussing the substitutive dynamics between the two. This paper uses changes of local debt management policies and the COVID-19 pandemic as quasi-natural experiments to assess how policies influence the roles of implicit government guarantees and credit enhancement mechanisms in the bond market. By comparing bond issuance pricing before and after the implementation of these policies, the study reveals how implicit guarantees and credit enhancement mechanisms function as substitutes. Our dataset, spanning from January 1, 2010, to May 31, 2022, includes key characteristics of Urban Investment Bonds, such as guarantee terms, issuing entities, and debt sizes. The data is taken from the Wind and Resset databases, ensuring its completeness and reliability, providing a solid foundation for the empirical analysis. The findings reveal that the presence of implicit government guarantees has allowed Urban Investment Bonds to benefit from lower financing costs. These implicit guarantees reduce investors' perception of default risk associated with local government financing platforms, resulting in more lenient pricing of these bonds. However, as policy reforms were progressively implemented, particularly with the introduction of Document No. 88 and Document No. 50, market expectations regarding implicit government guarantees began to diminish. Our empirical analysis demonstrates that the weakening of implicit guarantees has significantly enhanced the effectiveness of credit enhancement mechanisms, particularly for bonds involving private enterprises and third-party guarantors, where the ability to share risk has steadily improved. Moreover, a clear substitution effect between credit enhancement mechanisms and implicit guarantees has emerged, as the market's reliance on implicit government backing decreased, shifting toward a greater dependence on credit enhancement as a tool for mitigating risk. However, following the outbreak of the COVID-19 pandemic, increased economic pressure on local governments and tighter financial controls led to a resurgence in investors' expectations for government bailouts. The study further identifies significant differences in the development of various guarantee types and guarantor entities, with credit enhancements provided by private enterprises and third-party guarantees proving to be more effective alternatives to implicit guarantees. Based on these findings, this study offers the following policy suggestions: First, efforts should continue to be made to reduce market expectations of implicit government guarantees by sending clear policy signals that limit the government's role in backing local financing platform debts. This will encourage more accurate risk pricing. Second, further development of market-based credit enhancement mechanisms is needed, especially on improving the effectiveness of professional guarantee companies and collateral-based services. The government should also promote greater involvement of private enterprises and third-party guarantors to enhance risk-sharing. The key contribution of this paper lies in its in-depth analysis of the interaction between implicit guarantees and credit enhancement mechanisms, providing a comprehensive framework for understanding how implicit guarantees can undermine the effectiveness of credit enhancement mechanisms. By exploring the diverse characteristics of guarantors and different types of guarantees, this study deepens the current understanding of bond guarantee systems and market-based pricing models, offering practical policy suggestions to facilitate the marketization of Urban Investment Bonds. Moreover, the research brings a new perspective to local government debt risk management, proposing market-driven solutions to reduce the reliance on implicit debt guarantees and promote greater transparency and efficiency in the bond market. For future research, it would be valuable to further explore the long-term effects of policy reforms on the sustainability of local government debt, particularly in contexts where the development of credit enhancement mechanisms remains uneven.
欧阳远芬, 王秋实. 基于隐性担保和显性担保比较的城投债定价研究[J]. 金融研究, 2024, 530(8): 77-94.
OUYANG Yuanfen, WANG Qiushi. Marketization of Urban Investment Bonds: A Comparative Study of Implicit and Explicit Guarantees. Journal of Financial Research, 2024, 530(8): 77-94.
[1]曹婧,2023,《刚兑信仰分化:隐性担保预期与城投债定价》,《世界经济》第6期,第85～107页。 [2]陈暮紫、王美惠和杨晓光,2022,《第三方担保对城投债增信作用的前后背离研究》,《管理科学学报》第11期,第85～108 页。 [3]林晚发、刘岩和赵仲匡,2022,《债券评级包装与“担保正溢价”之谜》,《经济研究》第2期,第192～208页。 [4]刘晓蕾、吕元稹和余凡,2021,《地方政府隐性债务与城投债定价》,《金融研究》第12期,第170～188页。 [5]罗荣华和刘劲劲,2016,《地方政府的隐性担保真的有效吗？——基于城投债发行定价的检验》,《金融研究》第4期,第83～98页。 [6]毛捷、刘潘和吕冰洋,2019,《地方公共债务增长的制度基础——兼顾财政和金融的视角》,《中国社会科学》第9期,第45～67页。 [7]邱志刚、王子悦和王卓,2022,《地方政府债务置换与新增隐性债务——基于城投债发行规模与定价的分析》,《中国工业经济》第4期,第42～60页。 [8]王博森、吕元稹和叶永新,2016,《政府隐性担保风险定价:基于我国债券交易市场的探讨》,《经济研究》第10期,第155～167页。 [9]王永钦、陈映辉和杜巨澜,2016,《软预算约束与中国地方政府债务违约风险:来自金融市场的证据》,《经济研究》第11期,第96～109页。 [10]钟辉勇、钟宁桦和朱小能,2016,《城投债的担保可信吗？——来自债券评级和发行定价的证据》,《金融研究》第4期,第66～82页。 [11]钟宁桦、陈姗姗、马惠娴和王姝晶,2021,《地方融资平台债务风险的演化——基于对“隐性担保”预期的测度》,《中国工业经济》第4期,第5～23页。 [12]Bai, C., Liu, Q., and Yao, W., 2020, “Earnings Inequality and China's Preferential Lending Policy”, Journal of Development Economics, 145, 102477. [13]Benmelech, E., Kumar, N., and Rajan, R.G., 2022, “The Secured Credit Premium and the Issuance of Secured Debt”, Journal of Financial Economics, 146, pp. 143～171. [14]Chen, F., Huang, J., Sun, Z., and Yu, T., 2020, “Why Do Firms Issue Guaranteed Bonds？”, Journal of Banking ＆ Finance, 119, 105396. [15]Chen, Z., He, Z., and Liu, C., 2020, “The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes”, Journal of Financial Economics, 137 (1), pp. 42～71. [16]Dong, Y., Hou, Q., and Ni, C., 2021, “Implicit Government Guarantees and Credit Ratings”, Journal of Corporate Finance, 69, 102046. [17]Gao, H., Huang, Y., and Mo J., 2022, “Boosted Credit Ratings in China: The Effects of Credit Enhancement on Bond Pricing”, SSRN Electronic Journal. [18]Gao, P., Lee, C., and Murphy, D., 2019, “Municipal Borrowing Costs and State Policies for Distressed Municipalities”, Journal of Financial Economics, 132, pp. 404～426. [19]Ioannidou, V., Pavanini, N., and Peng, Y., 2022, “Collateral and Asymmetric Information in Lending Markets”, Journal of Financial Economics, 144, pp. 93～121. [20]Menkhoff, L., Neuberger, D., and Suwanaporn, C., 2006, “Collateral-based Lending in Emerging Markets: Evidence from Thailand”, Journal of Banking ＆ Finance, 30, pp. 1～21. [21]Walker, T., Zhang, X., Zhang, A., and Wang, Y., 2021, “Fact or Fiction: Implicit Government Guarantees in China's Corporate Bond Market”, Journal of International Money and Finance, 116, 102414. [22]Zhang, X., and Wang, Z., 2020, “Marketization vs. Market Chase: Insights from Implicit Government Guarantees”, International Review of Economics and Finance, 69, pp. 435～455.
