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Land Finance and Debt Growth: An Empirical Study Based on PrefectureLevel Panel Data

【Authors】
YANG Jidong, YANG Qijing & LIU Kai
【WorkUnit】
Renmin University of China,100872
【Abstract】

Taking the so called “City investment bond” (CI bond) as an example, this paper examines the mechanism of land finance and its impact on the debt growth of Chinese local governments. The issuance of CI bond normally uses the land leasing revenue of local governments as the collateral. Therefore, the land leasing revenue can influence investors' expectation on the solvency of CI bond, and then influence the issuance of CI bond through the collateral channel Moreover, this kind of collateral mechanism may vary with the characteristics of cities. By exploring the prefecture-level data sets of land leasing and CI bond issuance during the period 2004-2013, we find that land leasing has a significant impact on the issuance of CI bond. Other things being equal, the higher the land leasing price was or the larger the land leasing revenue was in a city last year, the more likely this city is to issue CI bond this year and the larger the issuance scale would be. Furthermore, in cities whose leadership is more stable, the effect of land leasing on CI bond issuance is greater. Therefore, the rapid growth of Chinese local governments' debts is highly related to the collateral value of lands under the control of local governments. And much attention should be paid to the influence of land leasing revenue fluctuations on the debt risks of Chinese local governments. 

JEL: H30, H74, R10

【KeyWords】
Land Leasing, City Investment Bond, Land Finance, Collateral Channel