金融学院知识库

The 20th National Congress of the Communist Party of China (CPC) clearly pointed out that China's efforts in preventing financial risks still face many difficulties and challenges. Maintaining the prevention of systemic and regional financial risks is an important cornerstone for ensuring the steady progress of China's economy towards high-quality development. The Financial Work Conference of 2023 emphasized the need to establish a sound institutional framework for preventing and resolving the risks of local government debt. This is aimed at achieving reasonable control over local government debt, in line with the goals of high-quality economic development.In recent years, the scale of local government debt in China has continued to rise, gradually becoming a significant hidden danger in preventing and resolving financial risks. As of the end of 2022, China's local government explicit debt was approximately 35.07 trillion yuan. According to data provided by the International Monetary Fund and the Wind Database, China's local government implicit debt was about 71.30 trillion yuan in 2022. It is undeniable that such a scale of local government debt, while promoting local economic development, can also have negative impacts on China's economic development and financial stability. In this context, conducting research on the impact of local government debt on regional financial risks is of great significance.

The paper firstly provides a summary and review of relevant literature on the measurement of regional financial risk and the impact of local government debt on financial risk. Secondly, it outlines the basic theories of public goods, fiscal federalism, and financial risk, and analyzes the current situation of local government debt in China. It then theoretically analyzes the mechanism of local government debt on regional financial risk. Based on panel data from 30 provinces in China from 2010 to 2021, the empirical study examines the impact of local government debt on regional financial risk, yielding the following conclusions:Overall, the expansion of local government debt levels tends to exacerbate the level of regional financial risk.Local government debt affects regional financial risk through the efficiency of financial resource allocation; the increase in fiscal autonomy weakens the impact of local government debt on regional financial risk.The increase in local government debt in western regions significantly increases regional financial risk, while in central regions, local government debt has a positive but not significant effect on regional financial risk. In eastern regions, the expansion of local government debt tends to reduce regional financial risk.Explicit debt has a negative but statistically insignificant effect on regional financial risk, whereas implicit debt has a significant positive impact. Moreover, the tendency towards longer maturities of local government bonds within explicit debt is detrimental to preventing regional financial risk.Based on this, proposals for improving the current fiscal management system include standardizing local government borrowing and investment activities, reducing administrative intervention by local governments in financial institutions, improving the efficiency of financial resource allocation, and enhancing the fiscal supply capacity of local governments. Additionally, there's a need to strengthen the standardized management of local government hidden debts and other policy recommendations.