Public Debt And Real Economic Development In China

Public debt, as an important form of government credit, is an important government measure for raising funds and implementing expansionary fiscal policies so as to pulling the economic growth. Since the global financial crisis in 2008, the world’s major economies have all introduced expansionary fiscal policies to stimulate economic recovery, among which the expansion of public debt became the main means of fiscal expansion. The increase of expanding financial policy and public debt scale has led to the obvious rise of public debt-to-GDP ratio in countries including China, especially in European and American developed countries. However, economic growth stimulation policies through borrowing haven’t produced obvious effects. On a global scale, the world’s economic recovery is still slow. It causes outbreaks of sovereign debt crisis in parts of European countries with high debt-to-GDP ratio in 2009. It has been fermenting till now, which has seriously influenced the development of world economy. From China’s economic development, the debt expansion has promoted short-term economic growth to a certain extent in recent years. However, a certain amount of latent risks have been accumulated due to the rapid growth of the total debt, especially the unbalanced growth of local government debt. This has poses hidden dangers and uncertainties to the long-term, continuous stable growth of the real economy. Therefore, questions like “Whether continuous enhancement of public debt level can prompt the economy, especially the real economy developed steady?”, “The influence mechanism, pathway, and connected effect between public debt and real economic growth” and so on attract wide attentions from scholars and policy makers once again.Existing research focuses on the influence of public debt to the overall economic growth and so on, while hasn’t lucubrated to the influence way and effect of the public debt to the real economy, however, in the real economy development, the internal mechanism of public debt affect real economic growth and the development trend features between the two is prerequisite to guarantee the stability of the economy. For this reason, this paper presents a study on influence of China’s public debt to the real economy through empirical analysis and normative analysis, on the basis of the existing public debt’s theoretical and empirical research results. It is aimed to answer the theoretical and practical questions like “The transmission mechanism of public debt to real economy”, “The influence of public debt on China’s real economy growth”, “Reasonable adjustment and allocation of public debt and local debt under the new normal economic conditions” and so on, and combined with China’s economic actual conditions, an evaluation on the implementation effects of public debt policies was conducted, and effective experience and reference were provided for the policy-making for promoting the real economy’s steady growth in the long term.In this paper, the main research contents and research conclusions are as follows:Firstly, thorough theoretical analysis on the impact of the public debt on the real economy is given in this paper. On the basis of combing the public debt theory and the previous research, we analyzed the effect of public debt on economic growth respectively from the perspective of short-term and long-term, flow and stock of public debt; we revealed the action mechanism and trend features respectively based on the macro level, micro level and financial level, that how the issue of public debt and debt capital investments through the influence of the elements among the process of conduction, and then affect the real economy growth and run, and it’s the theoretical base for the latter thorough researchSecondly, combining with the present economic development situation of our country, we investigated the impact of the public debt on the real economy of our country multi-dimensionally by building relevant econometric models, form the point of the conduction effect, the growth effect and the industry effect respectively. The empirical analysis of the problems mentioned above is given with a variety of econometric model and method, our empirical study contains the following content: Based on the linear regression model, we examined the conduction effect of public debt to the real economy and production input factors, and the conduction effect of public debt issue to private consumption and investment; Based on the nonlinear smooth transformation model, we studied the nonlinear effect of public debt to our country’s real economy growth in different stages of real economy growth and the changes of public debt scale; Based on the variable parameter state space model, we revealed the differences that the dynamic effect of public debt to China’s three industries; Based on the Time-varying parameter vector auto regression, we analyzed the impulse response of the shock form public debt to China’s manufacturing and so on.Thirdly, form the view of overall effect of public debt and real economy development, linear regression analysis and simulation based on all sample elements indicate that, the promoting effect of China’s public debt to real economy growth is not obvious. This is not only related to the issued amount and efficiency of debt, the scale of new debt and stock debt and risk management and so on, but related to the choice of demonstration model. For this purpose, we deeply analyzed by nonlinear measurement method form the different stages of economic development and industry level, and the results show that, this effect demonstrates nonlinear characteristics in different real economic cycle and public growth step.Fourthly, form the view of industry effect, new debt and stock debt is one of basement of industry development, the two have continual enhanced stimulate action on China’s three times industry growth, and the degree of action exists significant differences among industries; The action of new debt and the stock debt on the technological advance of the first industry and the third industry is weaker, but the action of public debt on the second industry technological advance exists continuously decreased stimulate action. In the further investigate of micro industries represented by manufacturing, we find that, the effect of public debt issue on the technological advance and output value growth of manufacturing is obvious inhibitory in the short term, while the effect will weaker in the long term; on the contrary, the effect of the stock debt on the two is obvious stimulate in the short term, while the effect will weaker in the long term, so adjust new debt and stock debt reasonably has great significance to promoting China’s real economic growth.Fifthly, combining with the views above, the present situation and countermeasure analysis of China’s local debt and local real economy development is given in this paper. Based on the development characteristics of China’s local government debt and China’s economic situation, the risk of China’s local government debt is analyzed; combining the background of our local government debt replacement, the specific effects of this strategy on China’s real economic is analyzed. At present, although the overall scale of local government debt is under control, unbalanced growth of which and the limitations of local government revenue, cause our country local government debt hidden certain liquidity risk and systemic risk, the management as well as the prevention and control of local government debt should be strengthen; under the background that China’s economy has entered new normal, local government debt replacement smoothly will reduce the cost of local government debt, alleviate the pressure of the local government debt, and it will revitalize the stock funds and promote the development of China’s real economy.This paper shows that, the influence of China’s public debt on real economy development is mainly embodied as unbalance characteristic on three industries. On the one hand, the crowding-out effect of public debt to private investment is obvious, so the power of driving real economic effective investment is not insufficient; on the other hand, China’s public debt fund is in recycling in the financial system to a large extent. Therefore, future period of time, on the side of disposing local debt questions properly on the base of guarantee no systematic risk occur, how to guide the public debt capital flow to the real economy, and to promote coordinated development of three industries, is the important problem worthy of attention and concern, and is our further research direction.