Government Guarantees China's Economic Transformation, Research, And Financial Costs

The logic of China's incremental transition decided that government's fundamental interests lay in promoting the economic transition smoothly with the least social cost. Time-buying strategy became the government's inexorable selection. The nature of time buying strategy is a kind of fiscal opportunism behavior. Under the constraint of fiscal strength weakening, the government inclined to accumulate excessive implicit and contingent liabilities in order to put off the timing of fiscal payment. Time-buying tactics mitigated government's pressure of fiscal expenditure and maintained moderate explicit liability burden and deficit rate, but in the short time, but in the long run, this kind of maverick will inevitably increase government's fiscal cost.By means of all kinds of guarantees, China's government has burdened large amount of implicit and contingent liabilities and implicit guarantees occupies main body of the government's guarantee system. The government's strong authoritative and credible resources were the pledges for the implicit guarantee mechanism to operate effectively. Implicit guarantee mechanism guaranteed state-owned sectors convenient financing with decreasing fiscal subsidies, but the incompleteness of implicit guarantee contract also caused distortion of incentive structure. Under the shelter of government implicit guarantee, guaranteed economic agencies' risk preference was increased, which caused serious moral hazard and adverse selection. Guaranteed economic agencies tried to transfer their external cost to the government, and this will surely increase government's future fiscal cost.In the market economy environments, government guarantee is a two-edged sword. In order to promote the efficiency of fiscal leverage and control fiscal cost, China's government must innovate its fiscal institution and policy method.