A Study On The Debt Risk Of Local Government In China

Government debt is not the unique phenomenon belongingto a country or region but a common action adopted by thegovernment all over the world. With the development offinancial market, credit and debt instruments provide aneffective method for the government to perform its functions.During the process of provision of public services,governments can realize the inter-temporal allocation ofright and responsibility with credit and debt instruments,and solve fair problem of intergenerational burden. However,government debt is also full of risks. If not handled well,it will bring serious influences to the society. There aremany examples in the history that the crisis of governmentdebt leaded to the breakdown of economy, regime change andeven social unrest. Through the development for severaldecades, the scale of our government debt, particularly thelocal government debt, has accumulated. Obviously,Government debt has become the factor affecting China’ssustainable and healthy economic and social developmentwhich cannot be ignored. So we must have a comprehensive andprofound understanding of this problem.The object of this paper is to analyze our concealedlocal government debt from the perspective of scale andstructure, reveal its risks and propose the correspondingsolutions. The research methods applied in the paperconclude quantitative and qualitative methods. This paperfirst makes a quantitative analysis on Chinese local government debt to understand the present situation of localgovernment from the angle of scale and structure. On thecondition of quantitative analysis, we do the qualitativeanalysis with debt theory to discover the essence of localgovernment debt problem.This paper takes the local government behavior patternas the breakthrough point, and makes the analysis of localgovernment behavior logic implicated in the government debt,thus revealing our local government debt problem. With thecombination of quantitative and qualitative methods, wecome to the conclusion that on the whole our local governmentdebt is still under controlling, but with a rapiddevelopment trend. If continuing developing along thistrend, the condition of it will deteriorate and may causethe crisis of local government debt. Therefore, we must takethe short-term and long-term measures to prevent localgovernment debt risks. In the short term, we should startfrom dealing with stock, controlling increment andadjusting the structure to optimize the local governmentdebt structure, and reduce the development speed of localgovernment debt. In the long term, we should graduallyinvest local government the right of borrowing money andestablish the local government debt management system, thusmaking the local government debt under strict supervisionsystem. Owing to the limitation of my own knowledge andresearch ability, the research on this problem has manydeficiencies. For example, we don’t have a sufficient overall grasp of local government debt and a thoroughanalysis of its structure. The analysis of its risks is stillimproved. And some of suggestions proposed in the last partof this paper are theoretical, and lack of practical test.In a word, we still have a further research on this problem.