Risk Analysis And Countermeasures Of Local Government Debt In China

In recent years, the debt risk problem of Chinese local governments has become increasingly serious and drawn the attention of people from all walks of life both home and abroad. It has become a hidden trouble to China’s economic security and national reputation. Many financial research institutions and economists have offered predictions on the size of Chinese local debts, but the findings are conflicting and arouse big controversy. Because the local debt issue is hidden to a large extent, it is even difficult for the government departments to know the real conditions. The National Audit Office of China has surveyed several times on the local debt situations, and disclosed official figures to the public. It has become a consensus that local government debt size is large, it grows fast and its risk is high, although there is a controversy about the specific size of the debt. Local government debt has become one of the difficult problems to be solved currently.The attitude of Chinese government on government debt has changed a lot since the founding of the People’s Republic of China. Since the reform and opening up of China, China’s local government debt has become a problem after 30 years of development. The law restricts local government to issue bond to raise fund, while China had an eager demand for infrastructure construction at the early stage of economic development, and private capital and government investment could not meet this demand. To accelerate the pace of economic development, local governments resorted to hidden channels to raise fund, therefore, local financing platforms have been established and government guaranteed finance is also rapidly developed. The financial crisis in America started in 2008 was spread to China, which made Chinese economy grew slower. To maintain economic growth rate and employment level, the Chinese government implemented a series of economic stimulus policies with the focus on local infrastructure construction. Local government’s debt mounted rapidly under this background.Now, through the haze of the economic crisis, we reviewed and found that a large amount of local government’s debt remained obscure information, Lending channel irregularly and other issues, intertwined with local government’s "land finance", the financial sector monopolies and other problems, has become the major risks of China’s economic development.How to resolve the local government’s debt crisis has become a hot topic in today’s economic. To compare with international, after the financial crisis, many countries encountered government’s debt crisis, which the solution, some have achieved initial success, yet some remains to be test, and some of the policy of Western countries has been taken are reference to the Chinese government. On the domestic policy, China’s central government has started to clean up local financing platform to carry out the debt exchange, and to study the new approach to dispose the new coming debt in the future, these measures are helpful to resolve the debt crisis. With the advance of a new round of political and economic reform, the Chinese government’s new solutions of the debt problem is coming soon.This paper describes the overall situation of China’s local debt and what causes it; then analyzed our local government debt to reveal the structure and characteristics of China’s local government debt; and then targeted at the risk of the stock of debt and new debt deal to resolve to discuss and learn from the Greek debt risk management and Detroit, for providing recommendations for treatment of local debt. This paper aims to recognize the local government debt’s truly nature, handling of China’s local government debt correctly, and for the right guiding to the development of the local debt in the future.