Research On The Sustainability Of China's Local Government Debt Under The New Normal

China is one of the few countries that restricts local government borrowing by law(before 2014),and it is also one of the few countries where local government debt exceeds central government debt.In recent years,C hina's local government debt has rapidly expanded,and it has become one of the main excuses for overseas institutions to sing our country.Local government debt has become a "gray rhino" in China's economy,and controlling the risk of local government debt has become a consensus between the central government,academia,and industry.With the economy entering the new normal state of medium and high-speed growth,how to imp rove the sustainability of local government debt is a hot spot in theory and practice.Existing theories affirm the rationality of local government debt.Local government debt is conducive to local economic growth if it meets the gold rules.However,large-scale local government debt will not only threaten fiscal sustainability,but also affect financial stability and long-term economy growth.Based on the fiscal revenue and expenditure identities,this paper uses mathematical formulas to illustrate the sustainable path of local government debt: measures to reduce local government debt costs,increase economic growth(improve the quality and efficiency of public investment),and increase fiscal base surplus.The empirical study using panel data of prefecture-level administrative regions from 2009 to 2018,found that China's local government debt has a significant positive impact on economic growth,and there is an inverted U-shaped nonlinear effect,which confirming the necessity of government debt and the need to strengthen management and enhance debt sustainability.This paper sorts out the development and supervision of local government debt in China,comprehensively and accurately grasps the substance of local government debt,and summarizes the continuous growth of local government debt into four elements under the framework of political centralization,fiscal decentralization,and implicit financial decentralization(Pressure,excuses,opportunities,motivation): Local officials are encouraged by political promotion championships whose main performance is GDP performance(motivation).Facing the financing pressure of economic development and the original debt extension pressure,Under the pretext of imbalanced fiscal revenues and expenditures in the reform of the tax-sharing system and the insufficient front door of debt are not big enough,facing financial institutions such as banks,due to anticipation of the government's illusion of preference for blind financing of government projects,and the lack of accurate data,the opportunity for external supervision is not in place.Financial means such as government investment funds and government purchase services continue to increase hidden debt.At the same time,using the promotion data of the party committee secretary and the executive head of the prefecture-level administrative region during 2009 to 2018,an empirical analysis found that the economic growth of officials during their tenure had a significant positive impact on their promotion,but debt growth did not have a significant impact on their promotion,which better explains the reasons for restricting the sustainability of local government debt,and provides a new reference for the formulation and improvement of official promotion rules.In terms of reducing the cost of local government debt,this paper focuses on the main influencing factors of local government bonds(the main method of local government explicit debt)coupon rate s,which is even more important under the new normal of the economy changing from high-speed growth to medium-high growth.This paper uses local government bond issuance data,to conduct an empirical study on the spread of coupon interest between the Local Government Bonds and Treasuries during the same period,with the issuer's economic structure,government debt rate,bond characteristics,and market capital supply and other variables.It is found that a better economic structure and a lower government debt ratio significantly reduce spread of coupon interest between the Local Government Bonds and Treasuries.The empirical conclusion provides a reference for reducing the financing cost of local governments.In addition,this paper analyzes Japan's local government debt governance in depth,and its tools to reduce financing costs(FILP,JFM,local government bonds)provide a good reference.PPP was originally used as a measure to improve the quality and efficiency of public investment in China,and to resolve local government debt.However,it may form hidden debt if it is not standardized.This paper builds the impact mechanism of local government hidden debt,official incentives and local government adoption of PPP model,using data sets of the Ministry of Finance PPP project library,local government financing Vehicles debt,local official characteristics,and local economic and social development.An empirical study was made on the panel data of annual prefecture-level administrative districts.Quantitative analysis shows that under the incentives for promotion and discharge of officials,local PPPs are not only closely related to changes in officials,but also significantly positively related to local hidden debts.This shows that the application of the PPP model is related to solving current financing problems,reflecting the existence of a certain degree of PPP progress.Financing orientation,reflecting from the side that the front door of government debt is not big enough,this is not conducive to improving the sustainability of China's local government debt.This paper also deeply analyzes the sustainable experience of Japanese local government debt and the lessons of Greek sovereign debt crisis.After experiencing high growth in the 1990s,Japan's local government debt has benefited from a series of reform measures.The scale of local government debt and its share of GDP have continued to decline,and its sustainability has been significantly enhanced.It focuses on analyzing Japan's measures to co ntrol the scale of local government debt,tools to reduce the cost of local government debt,and mechanisms to reduce the risk of local government debt.The lessons of Greek government debt disposal reflect the serious consequences of unsustainable government debt,and more attention should be paid to the use and structure of government debt,and the realization of basic fiscal surplus,which is the key to Greece out of the debt crisis.Based on the above research and analysis,This paper puts forward rationalization suggestions from the aspects of resolving current debt,reducing debt costs,improving investment efficiency,improving basic fiscal surplus,and strengthening debt supervision.