The Study Of Financial Risk On China Based On Balance Sheet Approch

In today’s world, economic security has become the core of national security. The prerequisite and primary factor of the economic security is the public financial security. Public finance is the key factor of maintaining operation of state power, optimizing resource allocation, macro-control of economic aggregate and economic structure, and promoting economic and social development. Ensuring financial stability and sustainable development have become the priority issues for governments.In the modern market economy framework, financial risk have become the issues for countries around the world. Due to financial risk related to a country’s national economy and social stability, the governments of all countries in the world are very sensitive to the financial risk. As one of the most important economic behavior in modern economic society, public finance is often the last one to bear the social economic risk,and to support the social stability. The financial risks accumulate and break into financial crisis, it would not only bring huge economic loss,but also more likely resulting in economic turmoil and social, political instability.The government departments of macroeconomic regulation and control around the world also face important issues including how to accurately measure and effectively prevent financial risk.The financial risk is caused by many uncertainty factors in the economic activities. Over the35years of reform and opening up, China’s economy has made rapid development, the financial system reform has made substantial progress, under the planned economy system, absence of clearly defined duties and responsibilities caused by the centralized government has been greatly improved, national revenue increased rapidly, the contribution of financial macro-control has become stronger. But at the same time, with the domestic and foreign market competition and the intensification of market fluctuations, various uncertain factors of social and economic life increase, China’s original potential financial risks have gradually appear, mainly displays in:the financial expenditure pressure is increasing, the debt burden has become heavier,the budget deficit has been normalization and long-term.National debt scale is expanding, while huge interest debt expenditure has enlarged the deficit, so that the risk of national debt and fiscal deficit risk change each other and continue to rise.The contradictions in the process of economic system transforming are becoming increasingly acute, some state-owned company face serious loss, and larger gap appear in the social security fund, social public risk continue to accumulate, and gradually transfer to public finance.In recent years, in order to promote economic development, effectively deal with the international financial crisis, China implemented a proactive fiscal policy, expanded the scale of government debts, accelerated the pace of infrastructure construction.Active fiscal policy played an important role in the expansion of our domestic demand, and stimulating investment, but there are some disadvantages.Because that the public financial strength is limited, the huge financial investment mainly rely on to increase the issuance of national debt, and financial deficit has being enlarged.In such circumstances of limited fiscal revenue,increases pressure for financial expenditure, the rapid accumulation of debt,aggravated difficult of debt repayment, financial risk will emerge as the times require.Because of the endogeneity of fiscal risk in China, there are still some deficiencies in the system, at the same time, there are many kinds of economic uncertainty in the period of economic transformation in our country, the potential financial risks have been increased.When the financial risks accumulated to a certain degree, it may lead to a severe financial crisis, and affect the healthy and sustained development of national economy,and easily resulting in social instability.The financial crisis resulted from subprime mortgage crisis in the United States in2008, the European debt crisis and the American "fiscal cliff", were closely related with the financial risk.In circumstances of current economic downward trend and experience of the deteriorating international economic environment, how to draw lessons from the financial crisis in western countries, and be vigilant in peace time, timely prevent and defuse financial risks,is an important task for current macroeconomic policy.Therefore, on the basis of organizing and summarizing of the related literature at home and abroad about thoughts and methods in study of financial risk, to further study the problem of China’s fiscal risk with the balance sheet, which has a very important theoretical and practical significance to effectively prevent and dissolve the financial risk in China,and to guarantee financial security and the stable operation of financial macroeconomic.In this dissertation, we use macro financial engineer theory and analytical method to identify and analyze the risk status of China.Then we study the overall financial risk status and anti-risk capacity, and try to build a systematic research framework of financial risk in our country.By taking research methods such as aggregate analysis and structural analysis, normative analysis and empirical analysis, government’s balance sheet analysis,we try to provide a new idea and research method for further analysis and management of financial risk. Firstly, based on summarizing the relevant research literature the financial risk,this paper try to put forward a research framework and ideas by the theories and methods of macro-financial engineering for the public fiscal risk in china.Secondly, we made a normative analysis of the endogenous financial risk of state-owned economy under China’s national conditions.Thirdly, according to the actual situation and the availability of data, relative continuity and consistency, empirical research about the financial risk of our country are made, including the trial compilation of our government in2000-2011annual balance sheet and econometric analysis, the establishment of government debt and the corresponding dynamic model for scenario analysis, introduced concept of value at risk in financial risk management for analysis of the maximum loss in the quantitative brought by China’s Government in a certain probability of default.Through empirical research, the net balance of our government showed a rising trend year by year, the analysis shows that the overall financial situation of our country is basically stable, and the financial risk is basically under control.Finally, according to the results of empirical research, the relevant policy and suggestions to strengthen our country’s financial risk management were put forward,such as:we can accelerate the establishment of a sound financial risk management system framework of macro finance, gradually reduce the transformation of macro financial risk to fiscal risk; gradually adopted accrual budgeting, fully reflect the financial assets and liabilities of the government; to establish and perfect the budget stabilization fund system, effectively deal with the financial emergency matters,etc.The dissertation is divided into seven chapters, which are arranged as follows.The first chapter is the introduction, mainly introducing research background, significance of topics, research methods and overall research approach, and summarizing the innovation and deficiency of this paper.The second chapter reviews literature related with financial risks, including the research of both domestic and foreign scholars, for subsequent normative analysis and empirical analysis.The third chapter analyzes the endogeneity of financial risks under the background of state-owned economy in our country. This chapter emphasizes flow analysis, states the two statements to measure financial strength, and comprehensively analyzes the development of local government debt and its internal causes through the changes in central and local financial revenue and expenditure. On this basis, we do systematic analysis on the endogenous factors of financial risks, including state-owned enterprises, financial structure, macro financial risk transformation and local government debt, and briefly make a comparative analysis among countries around the word.In the fourth chapter, we try to compile the government balance sheet of our country in2000-2011. Starting from stock analysis, this chapter describes the data sources and estimation methods of the government balance sheet from2000to2011, and then analyzes each project data and estimation result in the balance sheet.The fifth chapter is the macro value at risk (VaR) analysis of financial risks in our country. The concept of value of risk in financial risk management is introduced in this chapter, which quantitatively analyzes the maximum loss at certain default probability and plays an important role in assessing the size of fiscal risk.The sixth chapter is the dynamic econometric analysis of Chinese government debt model. Scenario analysis method is used in this chapter to study the dynamic evolution process of national indebtedness, by exerting an endogenous constraint on government debt to link government debt ratio with interest rates. The results show that Chinese government debt ratio is likely to rise in the near future, and however, because of endogenous constraint, the debt ratio would eventually tend to a level.The last chapter contains conclusions and policy recommendations. On the basis of theoretical and empirical analysis in the former chapters, this chapter gives the conclusion from general perspective, and puts forward policy recommendations and future research direction targeted to financial risk problems in our country.