Local Government Debt Risk Problem In Economic Sociology Perspective

In1980s, after the Latin American debt crisis, the government debt problem has begun to attract world attention. After the outbreak of the Southeast Asian financial crisis, in the late1990s, the government debt crisis once again attracted the attention of the world. Furthermore, the new round of European sovereign-debt crisis starting from Dubai’s sovereign debt crisis in November2009, grab extensive attention around the world.In China, Local governments, through their financing platforms which raise a large amount of debt in badly regulated way, and ultimately brought huge debts on themselves. The debts greatly exceeded the financial resources of local governments, so that local government faces enormous debt risk. And the risk may bring political, economic and social disaster to China. To which the central government and the community was highly concerned. The risk of local government debt became a major problem to be solved.In summary, the risk of government debt, the major economic sociological issues has become the focus of the countries worldwide, including China. Local government debt risk to Chinese scholars is of great practical significance, as a matter of fact, in the late two years a large number of experts and scholars have studied this problem and formed a number of conclusions. However, as local government debt is a problem influenced by political, economic, legal, social, cultural and social system, these existent findings have not yet been systematical and comprehensive enough to reveal the root causes of the risk of local government debt, which, thus waiting for the further study to reveal.This dissertation is based on the perspective of economic sociology, that is, local government debt risk is embedded in the whole social system, taking into account the influence of the political, legal, social, cultural and social elements.This dissertation follows the logical structure of "proposing, analyzing and solving problems":First, to put the topic of this paper----local government debt risk in China, and introduce economic sociological analysis by taking the topic’s characteristics of trans-field and discipline into consideration. And thento analyze by economic sociological way, from the identification, the situation, the causes to theevolution mechanisms, and other respects. At last put forward some technological and institutional countermeasures which is separately for a temporary and permanet cure.This dissertation consists of seven chapters:Chapter1is the introduction part. We propose the topic, illustrate the object, significance, methods and the structure, then the relevant concepts are defined to determine the scope of the study.Chapter2presents a literature review, introduces and analyzes the economic sociology theories used in this dissertation, and then illustrates the economic sociological methods in analysis of local government debt risk.Chapter3analyzes the identification standards of local government debt risk based on the economic sociological theories and methods. We believe that the qualitative criteria should be "local government’s inability to fulfill its debt repayment lead to a strong negative pressure on the local political, economic and legal systems to change, or the local economic development, even on ones at the national level and social stability. The traditional qualitative criteria actually belong to the scope of the fiscal risk. Take into consideration a certain country’s political, economic, legal, cultural and other institutional factors, we believe it inappropriate to simply transplant the international warning index of government debt risk, and that a globally fixed standard may not exist. However, we still need to form valid judgment after taking into consideration the concrete amount of local government debt, the regional institutional environment, and our corresponding institutional or economic, social sensitivity.Chapter4analyzes the situation of local government debt risk. On the basis of the study of the existing surveys and researches and the author’s deep interviews, by using the debt risk matrix most widely applied internationally, we estimate the overall size of local government debt to at least15.881389trillion Yuan. Then we analyze the current situation of local government debt risk on risk identification standards that we have already established, we found that such a huge scale of debts does pose great risk on Chinese local governments, thus probably damage economic development, financial stability, social stability, social trust and image of the government, while it will likely force the financial, economic and legal system to change, which is consistent with the risk identification standards of the local government debt risk built in Chapter3.Chapter5gives an economic sociological analysis of the cause and evolution mechanism of local government debt risk. We found that, growing market economy and the social structure characterized by self-awareness and self-serving ideology triggered by the market economy, brought a conflict, with the fundamental political and economic system and its formal rules of which there are no significant changes. This conflict provided an institutional environment for government officials to rent-seeking (for example, the strong position of the government, the enormous but disadvantageous non-governmental economic entities, a weak legal system, and the masses’ disadvantage, etc.), thus informal rules based on self-serving values prevailing over formal rules among government officials and other people, resulting in the weakening of control, information asymmetry and incapablity of the central government over the behavior of local governments, including debt-raising. So, the institutional conflict, weakening of central government as the Principal caused by this conflict, together with the lack of effective supervision from the public, combined generate the local government debt riskThis chapter also includes a principal-agent therotic analysis on the basis of the institutional embededness, and an empirical test through case study.About the evolution of local government debt risk, Chapter5Holds that, the evolution of government debt risk is the result of the game between the central and local governments based on their own interests. Before the fundamental institutional environment in China has not been improved, the local government debt risk will still evolve and develop in different forms. However, the government may take some technical countermeasures to play a curb or mitigate debt risk, the process of evolution and development may be wave-like.Chapter6proposes technical and institutional countermeasures to Chinese local government debt risk on the basis of the analysis of the causes and evolution mechanism, among which technical solutions are supposed to work even in the existing system conditions; institutional ones are radical. Implementation of the institutional countermeasures may be a long process.Chapter7is the summary. In this part we also point out the innovations and shortcomings of this dissertation, have an outlook of the further research.