Local guarantees and SOE bond pricing in China
研究中国国企债券定价中地方政府隐性担保的变化，发现2018年后各省担保力度下降、市场分割加剧，且与地方财政空间和违约事件相关。
We study the changing landscape of credit market guarantees by examining the risk-pricing of the Chinese state-owned enterprise (SOE) bonds, which have experienced rising defaults across provinces from a zero record. Using primary market bond issuance data, we identify a province premium that captures the perceived local government support for local SOEs. We find that on average the perceived local government support is on the decline, while the subnational debt market has become more segmented since 2018. This evidence is found to be closely related to the divergence in local government’s fiscal space and the occurrence of SOE default incidents in the area, highlighting the adverse linkage between public debt and corporate financing costs.