The Proactive Fiscal Policy Under The Government Debt Management Study

Expanding fiscal policies include tax reducing, increasing government spending and excess of government expenditures by means of public debt issue. Since 1998, China has been confronted with regression, declining in aggregate demand and slowdown in output growth rate. To tackle this challenge, the government adopted fiscal policies characterized by excess investment to social infrastructure through large amount of public debt issuing. In the past few years, total amounts of the existed public debt of China increased in an annual rate of 30%. Evidence showed that the function of public debt of boosting and stabilization the performance of national economy was significant. Up to this time, public debt is not only a way to offset budget deficit to support excess expenditure and investment of government, but also is a fixed income securities which play an important role in financial market. Because of lacking practice experience and weak theory research in the field, central government has been stricken by heavy debt although the scale of public debt is not very large. Meanwhile, the expenditure of government is more depended on public debt issuing due to the poor management. In the next five years, the expanding fiscal policy will be further implemented, and the amounts of public debt will also be increased drastically in China. To cope with this situation, it is very important for us to issue public debt low costly and efficiently, to flourish the bond second market to make public debt more popular, and to play the role of public debt sufficiently to boost and stabilize economic growth in China.By means of modern economics and investments theories, aimed at optimization of public debt cost, this paper performed empirical studies on public debt management in China from aspects including debt issue, term structure design and reimbursement etc. Main content and relevant conclusions of this paper as following:1. Relevant indicators showed the scale of public debt in China is reasonable and the expanding fiscal policy labeled debt issue could be implemented continued to stimulate and keep stable economic growth rate from recession. Indicators showed that total amounts of the existing public debt are in a reasonable level and fiscal policy labeled by debt issuing could be implemented continued. Since the inefficient financial intermediaries couldn't use resident savings efficient to support economic growth, it is wise to implement expanding fiscal policy use part of savings deposited in the bank system by means of public debt issue to recover national economy from recession and stagnation. Furthermore, adequate marketable government bond is also necessary to the development monetary and security market in China.3. Poor management of public debt is one of main reasons caused the heavy debt burden and make government spending over dependence on debt fund raising. The poor management is focused on the design of debt issuing, including issue methods, interest rate, term structure and debt reimbursement.4. Currently, the core task for us is to optimize the cost of public debt. The interest expenditure increased by the inadequate design of public debt should be highlighted. The highly government debt interest expense is mainly xcome from the following factors. Firstly, the rate of public debt is higher than the relevant rate of bank savings. Secondly, thedetermination of term structure is unmatched with the periodical fluctuation of market interest rate. The unreasonable term structure of public debt leads to a large amounts of expenditure, which could be avoided, surplus of interest expense weakened the positive role of public debt to the economic, growth. ,5. The financial function of public debt and its distribution and depth in economy should be strengthened by the design of debt issuing. In order to make public issuing successfully, the term of issue should match the preference of investors.6. Different issue terms leads to difference financing efficient and interest cost. There is no fixed issue mod...