A Study On The Problems Of China's Local Government Debt Under The Perspective Of Economic Growth

In recent years,China's local government investment and financing platform has played a very important role in fighting the international financial crisis and in promoting the regional economic growth.However,meanwhile,the local debt problems have attracted an more and more widespread attention.This dissertation studies the local government borrowing behavior and local debt issues from the perspective of economic growth, in order to promote economic sustainable and rapid growth with the financial risks under control.Our research proposes three theoretical assumptions about the relationship between the local government debt and economic growth:(1) During the transition period, the borrowing behavior of local governments can promote regional economic growth; (2) In China's eastern region which have the higher degree of marketization, the relationship between the scale of local debt and the economic growth is presented in an inverted "U" shaped; (3) In China's midwest region in which the degree of China's market is relatively lower, the relationship between the scale of local debt and the economic growth is presented monotonically increasing or monotonically decreasing.From a quantitative point of view,taking the marketization degree of the provinces in China since the reform and opening up as the basis of classification, our country is divided into eastern, middle and west three parts, three typical provinces were selected from the three regions as the object of study, based on theoretical assumptions,the relationship between the local government debt scale and economic growth of he various sample provinces has been tested by the mathematical model established on the RCK model framework and the corresponding ridge line equation empirical model using the Stata software carrying out SYS-GMM,the empirical results effectively validate the previous theoretical assumptions.The main conclusions of this study:(1)The local government debt is an objective requirement for China's economic development.The local government debt has made powerful impetus to the regional economic growth; (2)The prominent institutional problems such as China's financial decentralized system, the system of transfer payments, the evaluation system for officials and local government soft budget constraint exposed by local government debt issues,and the investment behavior of local governments lack of effective supervision, seriously affecting the healthy and sustainable growth of China's macroeconomic and regional economic.These problems all need to be resolved as soon as possible; (3)Since the reform and opening up, along with the unbalanced economic growth development strategy in China has been implemented, it leads the market level uneven in the regional distribution, and also make difference between the local government on borrowing, investment behavior in promoting economic growth role:on the one hand, in the eastern region with the higher degree of marketization, the relationship between economic growth and scale of local debt is presented in an inverted "U" shaped; the other hand, in the western regions with the lower degree of marketization showing monotonically increasing between the local government debt size and economic growth.For local government debt problems,we proposed the following policy recommendations from the central and local of two levels governments.For the central government level:(1)Improve the system of fiscal decentralization in China,straighten out the property rights and real power relations between central and local; (2)Improve the transfer payment system, further protect and increase transfer payments to the county government;(3)Increase the infrastructure investment and financial support on midwest regions;(4)Rational allocate the financial funds, bank loans resources between the government and enterprises, during supporting local government infrastructure construction, increase funding support to small local micro-enterprises and scientific and technological innovation enterprises;(5)Reform and improve the local officials appraisal system and harden local budget constraints; (6)Explore the establishment of issue bonds system of local governments, enhance the local government debt financing capacity.For the local government level:(1)Establish the scientific borrowing and project investment decision-making mechanism of the local government; (2)Further transform government functions, and straighten out the relationship between the government and the market, and make the market play a better basic role on the allocation of resources; (3)Establish and improve local government debt management system, strengthen the management capacity of local government debt.