The Selection Of China’s Sub-national Debt Supervision Models

In recent years,the scale of sub-national government debt in worldwide has continued to expand,risks have become increasingly concentrated,and the importance and necessity of sub-national government debt supervision has suddenly become prominent.The advantages and disadvantages of different debt supervision models are gradually exposed in the practice of debt supervision in various countries.It is imperative that countries need to seek a debt supervision model that is favorable for debt management and optimization.Since the reform and opening up,China’s sub-national government debt system has gradually changed,showing the reform from the direct government’s direct loan financing to sub-national capital market debt financing.The debt supervision model generally shows a trend from administrative controls to rule-based controls.Based on the application of reputation model,this paper analyzes the choice of China’s debt supervision mode by using dynamic game comparison analysis method.It is concluded that the reputation mechanism has different constraints and incentive effects in two different debt supervision modes.A centralized government with strong debt-raising rights and strong supervision ability can achieve the effect of guiding sub-national governments to independently implement debt constraint by decentralizing debt limits.The administrative control provides a good opportunity for the strengthening of the reputation of the central government and the cultivation of sub-national government reputation.The rule-based control requires both parties to have a good reputation.Both parties strictly enforce the rules and value the reputation to achieve debt constraint.The experience of debt supervision from countries such as India,Brazil,Mexico,and the United States further validates the conjecture of reputation theory,and provides useful lessons for the choice of China’s debt supervision and the design of debt-restriction related systems that play a reputation mechanism.China’s sub-national government debt supervision has achieved certain results,but the current debt supervision still faces some challenges: sub-national government moral hazard exists,accountability mechanism is not perfect,and market pricing mechanism is imperfect.It is suggested that administrative controls should still be implemented,and the sub-national government debt supervision reputation mechanism should be established through the following measures : Set up special incentives to enhance the effect of reputation on sub-national government’s borrowing;strengthen accountability supervision,let sub-national governments restrict their own debt-raising behavior based on reputation;strengthen financial management,and let reputation play a long-term incentive mechanism in multi-governance.