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Local Government Debt Replacement Plan and New Implicit Debt——Based on Issuance Scale and Pricing of Chengtou Bonds

QIU Zhi-gang;WANG Zi-yue;WANG Zhuo;School of Finance,Renmin University of China;  
The increasing level of government implicit debt in recent years resulted in new challenges for the governance of the local government implicit debt.This paper focuses on Chengtou bonds and examines the impact of the local government debt replacement during 2015 and 2018 on the scale and cost of the issuance of new implicit debt with different usages.It measures the extra guarantee ability from the local government debt replacement by the ratio of the scale of the issuance of the local government bonds for replacement to the fiscal revenue of the province, and finds that the local government bonds for replacement increases the funding for repayment, which significantly substitutes for the Chengtou bonds used for repayment and supplementary liquidity, hence reducing the demand and the issuance amount of these Chengtou bonds by the “substitution effect”,and implying that opening the “front door” can reduce the financing through the “back door”.However, not all districts have “substitution effect”, the local government debt replacement reduces the issuance cost of the Chengtou bonds by the “implicit guarantee effect”, mainly in places with weak guarantee ability, hence weakening the “substitution effect”, and even promoting the issuance of Chengtou bonds for investment in these districts, implying that opening the “front door” can facilitate the financing through the “back door”.This study facilitates the understanding for the regional difference of local government debt problem, and provides advice for using debt replacement to fend off the risk of local government debt according to local conditions.
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