Liu, Lili2014-08-192014-08-192010-08-16https://hdl.handle.net/10986/19471The Chinese budget law prevents subnational governments from borrowing. However, Subnational Governments (SNG) borrows indirectly off-budget, through Urban Development and Investment Corporations (UDIC). There are various estimates on the off-budget liabilities, with one estimate having the liabilities at more than 30 percent of Gross Domestic Product (GDP). This paper provides a discussion of more reform options for China, anchored with cross-country experiences and lessons. The way forward is to develop regulatory frameworks that can expand SNG and UDIC market access and debt financing, while strengthening subnational fiscal discipline, managing default risks, promoting capital market development, and supporting macroeconomic management and a stable financial system. The paper is organized as: section two presents fiscal rules and framework - ex ante regulations for subnational debt issuing and procedures. Section three discusses what to do when a subnational government becomes insolvent - ex post system. Section four is devoted to developing regulatory frameworks for UDIC, which may require a debt restructuring system different from a system for direct debt of SNG. Ex post debt restructuring for UDIC may also differ from the existing bankruptcy code in China for corporations due to the fundamental difference between a public entity and a private corporation. Section five focuses on strengthening debt management capacity of SNG particularly with respect to liquidity and refinancing risks. Section six focuses on managing fiscal risks of land financing, given its prevalent use in China. Section seven discusses the development of a competitive and diversified subnational debt market. Section eight concludes with suggested reform options.en-USCC BY 3.0 IGOACCOUNTANTACCOUNTINGACCOUNTING STANDARDSACCRUAL ACCOUNTINGAMORTIZATIONAMOUNT OF DEBTARREARSBAILOUTBAILOUTSBALANCE SHEETBANK LENDINGBANK LOANSBANKRUPTCYBANKRUPTCY COURTBANKRUPTCY LAWBANKRUPTCY PROCEDURESBENEFICIARIESBONDBOND ISSUANCEBOND ISSUINGBOND SALESBONDSBORROWERBORROWING COSTBORROWING PLANSBUDGET CONSTRAINTBUDGET CONSTRAINTSBUDGET DEFICITBUDGETARY FRAMEWORKSCAPITAL ACCOUNTSCAPITAL INVESTMENTCAPITAL INVESTMENTSCAPITAL MARKETCAPITAL MARKET DEVELOPMENTCAPITAL MARKETSCASH FLOWCASH MANAGEMENTCASH RESERVECATEGORY OF DEBTCOLLATERALCOMPETITIVE AUCTIONSCONSUMPTION EXPENDITURECONTINGENT LIABILITIESCONTRACT LAWCORPORATE GOVERNANCECORPORATE INSOLVENCYCREDIT ASSESSMENTCREDIT MARKETCREDIT MARKETSCREDIT RATINGCREDIT RATINGSCREDIT RISKCREDIT STANDINGCREDITORCREDITOR CLAIMSCREDITOR RIGHTSCREDITORSCREDITWORTHINESSCURRENCYCURRENCY CRISISCURRENCY RISKSDEBTDEBT BURDENDEBT CAPACITYDEBT COMPOSITIONDEBT CRISESDEBT CRISISDEBT DEFAULTDEBT FINANCINGDEBT INSTRUMENTSDEBT ISSUANCEDEBT MANAGEMENTDEBT MARKETDEBT OBLIGATIONSDEBT OUTSTANDINGDEBT PAYMENTSDEBT REPAYMENTDEBT RESTRUCTURINGDEBT RESTRUCTURING AGREEMENTSDEBT SERVICEDEBT SERVICESDEBT SERVICINGDEBT STOCKDEBT-SERVICEDEBTORDEBTORSDEBTSDECENTRALIZATIONDEFAULT RISKSDEFAULTSDEPOSITDEVALUATIONDEVELOPING COUNTRIESDOMESTIC BORROWINGDOMESTIC CURRENCYDOMESTIC MARKETSEXPENDITUREEXPENDITURESFINANCESFINANCIAL CRISISFINANCIAL DISTRESSFINANCIAL HEALTHFINANCIAL INSTITUTIONSFINANCIAL MANAGEMENTFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL RISKSFINANCIAL STATEMENTFINANCIAL STATEMENTSFINANCIAL SYSTEMFISCAL AUTONOMYFISCAL DECENTRALIZATIONFISCAL DEFICITFISCAL DEFICITSFISCAL DISCIPLINEFRAUDGENERAL OBLIGATION BONDGENERAL OBLIGATION BONDSGOVERNMENT CAPACITYGOVERNMENT DEBTGOVERNMENT GUARANTEESGOVERNMENT MONETARY POLICIESGOVERNMENT REGULATIONSINDEBTEDNESSINDIVIDUAL CREDITORSINDIVIDUAL INVESTORSINFLATIONINFLATION RATEINFORMATION SYSTEMSINFRASTRUCTURE BONDSINFRASTRUCTURE DEVELOPMENTINFRASTRUCTURE FINANCEINFRASTRUCTURE FINANCINGINFRASTRUCTURE INVESTMENTINFRASTRUCTURE INVESTMENTSINTEREST PAYMENTSINTEREST RATEINTEREST RATE SPREADINTERNATIONAL BANKINTERNATIONAL RATING AGENCIESINVESTMENT CORPORATIONSINVESTMENT INSTRUMENTSINVESTMENT PROJECTSINVESTOR BASEISSUANCELEGAL CONSTRAINTSLEGAL FRAMEWORKLENDERLENDERSLEVEL PLAYING FIELDLIABILITYLIQUIDATIONLIQUIDITYLIQUIDITY POSITIONLOCAL GOVERNMENTLOCAL GOVERNMENTSMACROECONOMIC CRISISMACROECONOMIC MANAGEMENTMACROECONOMIC VARIABLESMARKET ACCESSMARKET DEVELOPMENTMARKET DISCIPLINESMARKET PARTICIPANTSMARKET RISKSMATURITIESMATURITYMORAL HAZARDMUNICIPAL BONDMUNICIPAL BONDSMUNICIPAL FINANCENATIONAL DEBTNATIONAL TREASURYNON-PERFORMING LOANSOUTSTANDING DEBTPENSIONSPORTFOLIOPRINCIPAL REPAYMENTPRIVATE CREDITORSPRIVATE DEBTPRIVATE DEBTORSPRIVATE FINANCINGPROVINCIAL DEBTPUBLIC ASSETSPUBLIC BANKSPUBLIC DEBTPUBLIC FINANCEPUBLIC FINANCESPUBLIC INVESTMENTPUBLIC SECTOR BANKSREAL INTERESTREAL INTEREST RATEREAL INTEREST RATESREGULATORY FRAMEWORKREGULATORY FRAMEWORKSREPAYMENTREPAYMENT OF PRINCIPALRESERVESREVENUE BONDSRIGHTS OF CREDITORSRISK MANAGEMENTRISKY BORROWERSSALE OF PROPERTYSHORT MATURITIESSHORT MATURITYSHORT-TERM BORROWINGSHORT-TERM DEBTSOLVENCYSOVEREIGN BONDSOVEREIGN DEBTSOVEREIGN GUARANTEESSTATUTORY REQUIREMENTSTATUTORY REQUIREMENTSSUBNATIONAL BOND MARKETSTAXTOTAL DEBTTRANSFER INTERCEPTSTRANSPARENCYTREASURY BONDSTRUSTEEVALUATIONVARIABLE INTEREST RATESWORKING CAPITAL10.1596/19471