Risk Analysis Of China’s Debt Policy

The Practice of economic development of countries has proved as an effective tool ofeconomic regulation, the National Debt Policy is not only an important component of FiscalPolicy, but also a bridge connecting the Fiscal Policy and the Monetary Policy, It is indeed hasplayed an irreplaceable role in raising funds and the process of regulation of the economy. Thecrisis of the European debt constantly reminded us that the National Debt Policy could developthe enormous potential only if it is used properly. Otherwise, allowing the growth of the nationaldebt scale and the continuously reduce in the ability to repay debt would result in the reductionof Government’s credit level, the turmoil of entire national economy and the tremendous damageto the whole society. China began to regain the national debt since1981, the scale of debt wasgrowing rapidly throughout three decades of debt issue. Especially after the Asian financial crisisin1998, since the situation of crisis and insufficient domestic demand may bring economicdownturn, China began to implement a proactive fiscal policy, followed by a huge increase in theissuance of national debt. In2008, because of the violent attack of financial tsunami induced bythe U.S. subprime mortgage crisis, the Chinese economy is facing a grim situation. China had toterminate the implementation of sound Fiscal Policy in2005under this circumstance. In anotherway, the proactive Fiscal Policy published again in our country as the goal of “expandingdomestic demand to maintain growth” in2008. The signs of economic recovery are obviouslyaccompany the rapid expansion of government debt. The less efficient use in government bondfunds makes the problem of bond repayment become the risk that cannot be overlooked.Based on the data of1991-2010years, the paper use the multivariate statistical analysis andR language modeling methods, giving the principal component analysis on the risk of China’sgovernment bond policy. Firstly, on the basis of analyzing the risk theory of the policy ongovernment bonds and China’s National Debt Policy practice, considering China’s impact offactors, the National Debt Policy can be divided into the targeting risk, the scale of investment inbonds, the risk of funding sources and use. Secondly, making quantify summary on China’spractice and issuing comprehensive assessments of China’s national debt policy risk by usingprincipal component analysis and R language. Moreover, the paper deeply analyzes the directionand efficiency of the national debt policy. Finally, the relevant policy recommendations forreducing the national debt risk and improving long-term effects of bond investment proposedwhich combined with China’s current macroeconomic environment and economic policy.