Legal Transformation of China's Local Government Debt: A Central-local Relations Perspective

HUANG Tao

［Abstract］　Nowadays, the increasingly serious local debt problems reflect a fundamental defect in China's financial system: the central-local relations were not included in the governance of China's rule of law system, resulting in a serious inequality between fiscal power and administrative authority of the local government．Improving the rule of law among the administrative powers in our country has gradually become a policy consensus though, the existing political control mechanism for preventing oversized debt financing will be inevitably weakened in this process．Therefore, when we promote legalization of relationship between the central government and local governments regarding administrative powers, it is necessary for us to find an alternative mechanism to control the “Soft Budget Constraint”in local governments．According to the actual circumstances in China, the behavior selection mechanism of financial market investors is expected to play an effective role in the control of local debt．However, to give it a full play, the necessary legal protection, i.e．to clarify the local governments' power on issuing bonds separately and its liability for assuming debts independently, thus making the local governments' invisible debts open and legalized.

［Key words］　Central Government and Local Governments, Relations of Administrative Powers, Local Government Debts, Soft Budget Constraint

[1] HUANG Tao, associate professor of Koguan Law School, Shanghai Jiao Tong University.