Research On Economic Effect Of Chinese Public Debt

China resumed the issue of its public debt in the 1980s when it started the economic reform and opened up to the outside world and has been practiced this policy since then. The volume of national debt increased year by year from 12.17 billion RMB in 1981 to 628.34 billion RMB in 2003, which was almost 50 times as large as it was in 1981. Public debt has become one important intermediate between fiscal policy and monetary policy.The public debt policy in China has experienced the similar development path as in the western countries. In the times of Planned Economy, public debt was restricted and prohibited owing to the old ideology and institution. In the initial stages after China started its reform and opening up policy, the classical thought of balanced fiscal policy has given way to the expansionary fiscal policy. The public debt policy has become one of the main policies for the government to manage the demand and promote the economic growth. In the Asian Financial Crisis in 1997, public debt has played an important role in keeping the stable economic growth in domestic market. The volume of public debt has increased dramatically since then. The number of constructive national debt issued between 1998 to the end of 2003 by the central government has reached 800 billion RMB with 600 billion RMB of public debt issued in 2003, which occupied 28.98% of government total financial revenue of the fiscal year. In the western countries, public debt has become one of the important tools for government to execute its monetary policy and the interest rate of treasury bill has served as the benchmark of the market for the pricing of other financial instruments. As the gradual development of Chinese bond market, public debt has shown its financial function, however, it can't be fully exerted because of the absence of basic institutions in the market such as free float of interest rate.The research on the public debt focuses on two different aspects. One is institutional study mainly on the mechanism and institution of issuing and circulation of public debt, the other is on the macroeconomic effect of the national debt making analysis on the relationship among all the variables of economy, which will be talked in the following thesis.The comprehensive summary of the main research on macroeconomic effect of public debt is made in the first part of the paper to give a general idea of the rules on theory and practice of public debt by introducing and evaluating dominant views on the macroeconomic effect of national debt of different phases followed by a review of development process of Chinese public debt both in theory and practice. Then it goes to the core of the paper to analysis the macroeconomic impact of national debt through theoretical and empirical research. This part mainly studies the influence of issue and circulation of Chinese national debt on economic growth, social demand (consumption and investment) and financial market (interest rate, money supply, market price) based on an analysis on the operation mechanism of public debt with an combination of Chinese practical situation. The paper ends with proposing some of the advice on the development of Chinese national debt.The macroeconomic effect of national debt is very complicated, which involves many aspects. There are still lots of things to be researched concerning this topic, and I will try hard to make further study on Chinese national debt.