Research On Local Government Debt Risk In China

The breakout of U.S. subprime mortgage crisis and the Greek sovereign debt crisishave drawn the world’s attention to the risks of government debts. In China’s economictransformation period, with the acceleration of china’s economy and reform of economicsystem, the local government is now faced with increasingly serious imbalance of cashflow and fast increased debts. Presently the debts of local government is already over￥10trillion,2.3trillion of which is of the government’s guarantee, and the ratio ofgovernmental debts to GDP has already reached26.7%, exceeding the internationalwarming rate of20%. The government is faced with a larger amount of debts andincreasing risks. In2008, the Ministry of Finance set up a specialized Debts ManagementOffice to handle local government’s debts, which signals the beginning and importance ofstandardized management of local government’s debts. However, it is still the beginningstage for local government to do the debts management and is still lack of experience.Under such circumstances, it is important for local government to seek a path which canutilize the debts and also control the risk.This article investigates the debt risks of Chinese local government, and it can bedivided into five parts. In the first part, the author summarized the theories related to thelocal government debts, and gave a definition of local government debts and the debtrisks of local government as a basic of discussion. In the second part, the author gave adetailed introduction about the classification and content of local government debts, andanalyzed the current situation and risks of local government debts. In the third part, theauthor analyzed the current situation of the local government bonds and its feasibility. Inthe fourth part, the author investigated the reasons of the debt risks for local government,and put forward the policy recommendations to solve the debt risks for local government.