Economic transition of resource-exhausted cities and local government financing costs: Evidence from municipal corporate bonds in China

The economic transition of resource-exhausted cities is an important issue for sustainable regional development. In order to guide economic transition, the Chinese central government publishes lists of “resource-exhausted cities” in batches, exerts administrative pressure, and formulates transition plans. To evaluate the impact of economic transition on local government financing costs in resource-exhausted cities, this paper employs a difference-in-differences framework based on these policy designations to investigate how transition pressure affects the spreads of municipal corporate bonds (MCBs). Results indicate that transition pressure significantly increases the average spread of MCBs. Mechanism analyses suggest that the policy intensifies fiscal imbalances and increases local fiscal burdens, thereby weakening local governments' implicit guarantee capacity and leading investors to demand a higher risk premium. Our findings provide causal evidence that policy-driven economic transition can materially reshape local debt pricing and highlight an important financial consequence of structural adjustment in resource-exhausted regions.