Abstract: Using the Contingent Claims Approach (CCA), this paper measures debt risk of thirty one Chinese local province governments at 2013, presents several scenarios which the local government asset value and debt scale changes, analyzes and assesses relevant movements of the risk indicators. Our results suggest that the debt risk of Chinese local province governments is still in control. It positively associates with the debt scale of local government and negatively associates with the asset value of local government, and becomes worse or even defaults when debt scale increases or asset value reduces. So the most important job for the local government debt management is to treat the existing debt, control the increasing debt, evaluate the assets that the debt formed, and improve the debt paying ability.

Key words: Local Government, Debt Risk, Debt Scale, Asset Value