Research On The Rational Scale Of China's Public Bonds

Government bond plays an increasingly important role in China's economic operation. In addition to finance fiscal deficits and to raise funds for construction, it also serves as an important means of national macro-control. In 1981 China started to re-issue treasury bonds and ever since that time the size of national debt has been increasing significantly. At the same time, indicators as debt burden and debt dependence increased rapidly, bringing a priority issue to China's current macroeconomic policy research, the National Debt Management. Will dramatic increase in the size of government bonds bring a negative impact on the economy? Therefore selecting the topic of paper on the appropriate scale of national debt has certain theoretical and practical significance.In this paper, research methods including combination of theory and practice, combination of empirical analysis and normative analysis, combination of dynamic analysis and static analysis are adopted.The innovation of this paper lies in that assessment indicators of bond scale and econometric method to build forecasting model are combined to make research on the scale of government bonds. Considering that popular warning levels of treasury debt capacity and solvency are set in accordance with western countries own situation, the paper selected most proper indicators to reflect the reality of the situation in China, and use them as reference to make initial judge on the bond's size. Then, given actual situation of our government management and financial operation, the government's hidden debts and contingent liabilities are huge and can be converted to government's direct debts under certain conditions, so indicator of country's overall debt ratio is introduced. Besides, from the perspective of debt sustainability, economic growth rate and real interest rates of government bonds are compared to get the conclusion that our government financial condition is stable in the long run. To establish the forecasting model of bonds issuance in the next few years, this paper makes use of integration theory and method. Based on annual data, the long-run equilibrium model of China's issuance scale of treasury bonds and short-term error correction model are built.The paper starts with background and significance of research. Then the theoretical evolutionary process on scale of debt is elaborated. Based on historical statistical data on China's national debt scale, empirical analysis is applied. International bond scale indicators and overall national debt ratio are used to make a preliminary analysis of the bonds status of China. Then these indicators and the theoretical limits of the aforementioned model are combined to make a comprehensive evaluation on the situation of China's national debt scale. Although our treasury bonds is within control in short time, but in the long run, the balance of government bonds continues to grow at a rate higher than the GDP growth rate, and the country's overall debt ratio remains high, so it is necessary to gradually reduce the size of issuance of treasury bonds, thus the scale of national debt can be controllable in the long run. Then to find out major factors that affect the issuance of bonds by econometric analysis. By building ECM model, the scale of bonds issuance in China the size in next three years can be predicted, based on which to judge the trend of national debt scale. The results show that given established national macroeconomic policies, China's treasury bonds will continue to show gradual expansion trend, so it is necessary to strengthen national debt management and control of treasury bonds. On this issue, two specific policy suggestions are recommended.