Three Researches On The Consolidation Of Domestic Debts During The Republic Of China

Government debt has the dual attributes of public finance and finance,which not only makes the government play a leading role in dealing with the debt crisis,but also makes the financial organizations led by banks become the main stakeholders.For China,local treasury bonds have surpassed national debt and policy bank debt,and become the largest bond variety in China.At the same time,banking financial institutions are the main subscribers of local treasury debt.At present,due to the lack of supervision on debt issuance and use,imprecise repayment guarantee and poor market liquidity,the contradiction between local treasury bonds and fiscal revenue and expenditure in many provinces is aggravated,and the risk of debt default is increased.Preventing and defusing financial risks has become the main task in the current Three Tough Battles.We should not only learn from foreign countries,but also learn from China’s debt consolidation experience.In the period of the Republic of China,in order to resolve the huge problem of debts,the government conducted three large-scale sovereign debt consolidation events,which had a great impact on Banks and other social sectors.Based on the perspective of the game between the bank and the government,this paper discusses the motivation,the process and result of the three national debt consolidation,as well as the influence on both sides of the bank and the government,in an attempt to demonstrate the logic and significance of national debt consolidation comprehensively and objectively.This paper is divided into five parts to analysis the three national debt consolidation.The first part is the first chapter,which is the introduction.This paper puts forward the theoretical and practical significance of the research based on the realistic background and the present situation of research.Inaddition,existing fruits of researches are reviewed in detail,the research structure is introduced,and the important concepts and time ranges are clearly defined.The second part is the background.This paper comprehensively combs and discusses the development of politics,economy,public finance and national debt in the period of the Republic of China,and clarifies the institutional environment and basic background of three national debt consolidation.The third part includes Chapter Ⅲ,Chapter Ⅳ and Chapter Ⅴ.Based on the background,taking the evolution of the relationship between the government and the bank as the research clue,the paper conducts qualitative and quantitative cross-analysis on the motivation,process and effect of three national debt consolidation under the framework of Nash bargaining game model.In the third chapter,firstly,the situation of debt issuance and repayment before the debt consolidation in 1921 is sorted out,and then the necessity of consolidating national debt is put forward by analyzing the motive of government default through the construction of debt credit model;secondly,the asymmetric Nash bargaining game is constructed under the bank-government relationship between "weak government" and"strong market".The model analyses the process and effect of debt consolidation in 1921.Finally,the paper discusses the sustainability of this consolidation from two aspects:the stability of bond fund and the issuance of new bonds.In the fourth chapter,first of all,with the establishment of the Nanjing National Government and the stability of the regime,the formation of a "strong government" is proposed.Under this background,the government strengthens its control over financial markets and forms a "political and economic swap" cooperative relationship with banks.Secondly,Under the impact of the September 18th Incident,the January 28th Incident and the pessimistic market expectation,the necessity of national debt consolidation in 1932 was put forward.Finally,the paper analyzes national debt consolidation in 1932 by building the Nash bargaining game,and discusses the benefits and losses of the government and banks.In the fifth chapter,firstly,we judge the relationship between the government and banks turn into "big government" and "small market".Then,we discuss the time inconsistency and its results after the national debt consolidation in 1932,and point out the motivation of the government to consolidate the national debt.Fanilly,we analyze the impact of national debt consolidation on the government and banks in 1936.The fourth part is the sixth chapter.Based on the discussion of the preceding two sections,this part analyses the internal logic and the root causes of the three national debt consolidation,and finds out the main causes of the different effects of the three national debt consolidation by combing the evolution of the banking-government relationship and the logic behind it.The fifth part is the seventh chapter,which is the summary and enlightenment.Firstly,conclusions and enlightenments are drawn by summarizing the previous research results.Hopefully,these enlightments may be of some help in current debt issue.Through the above analysis,the article mainly obtains the following four innovations:Firstly,research perspective innovation.The paper makes a dynamic analysis of the reasons,processes and results of the three national debt consolidation in the Republic of China from the perspective of the game between government and banks.Secondly,research methods are innovative.The paper studies the direct causes,game process and results of the three national debt consolidation by empirical approach,game models and other quantitative methods.For example,the paper analyzes the process and results of national debt consolidation by building Nash bargaining model and a large amount of historical data.Thirdly,research data innovation.The paper consults and collects the contents of various newspapers and periodicals about national debt during the Republic of China,such as the market prices of many national debts from 1923 to 1947,the amount of national debt held by important banks and related earnings,as well as the actual issuance and amount of some national debts are sorted out based on "Economic Statistics","Bank Weekly Newspaper",Bank Weekly Newspape","Shun Pao" etc.Finally,the innovation of content and viewpoints can be summarized as the following four points:Firstly,the direct causes of the three national debt consolidation respectively are reconstructing the credit of debt,avoiding the public financial crisis and improving the financial capacity of the government.The fundamental reason for national debt consolidation is the unsolvable contradiction between revenue and expenditure.At the same time,the motivation of national debt consolidation in 1921 and 1932 belongs to market behavior,while the motivation of national debt consolidation in 1936 belongs to administrative behavior.The difference is the result of the time inconsistency of policies after 1933.In 1932,the government promised to improve the budget system,cancel military expenditure and no longer issue bonds for civil war and government expenditure.If the government kept its word,the financial plan of saving military expenditure and balancing income and expenditure,enhancing the development level of economy could come true.But it was contrary to Chiang kai-shek’s policy of,seeking peace at home before going abroad".After Kong Xiangxi replaced Song Ziwen,not only did he implement the budget system effectively,but strongly supported the civil war policy.It leads to military expenditure inflation and deficit increase.Therefore,Kong Xiangxi returned to the way of solving the deficit by issuing bonds,so that the scale of national debt continued to expand.Time inconsistency eventually leads to the failure of existing national debt funds to cover the principal and interest of all old debt and to support the issuance of new debt.The government can only solve this contradiction and improve its financial capacity through administrative intervention——the internal debt consolidation in 1936.Secondly,the results of national debt consolidation in 1921 and 1932 are Pareto effective,while 1936 are not pareto change.The main contents of the national debt consolidation in 1921 include the establishment of an independent third party—the General Taxation Department—to supervise bond fund,and the reduction of the cost and extension of the repayment period of the old debt.Under the framework of debt fund supervised by an independent third party,the principal and interest of all old debts were paid on time,and the price of the bond market was gradually rising,which rebuilt the debt credit and protected the interests of banks.At the same time,the government’s debt expenditure burden had been reduced.Therefore,through the national debt consolidation in 1921,the utility of both banks and government had been maximized and Pareto efficiency has been realized.The main contents of the national debt consolidation in 1932 included reducing and postponing the interest rates of 23 old debts;allocating 8.6 million yuan per month to the National Debt Fund Management Committee to repay the principal and interest of debt;improving the financial budget system and making public finance;and no longer issuing national debts for civil war and government affairs.Through the above arrangement,the government’s debt burden had been reduced,and the annual number of repayments of principal and interest was reduced by nearly 100 million yuan compared with the original case.At the same time,the repayment of various old debts had been guaranteed,the bond price had risen,and the interests of banks in investing in national debt was maintained.Therefore,the outbreak of the public financial crisis was avoided by sorting out the national debt,and the two sides of the bank and the government achieved a win-win situation.The main contents of the natioanl debt consolidation in 1936 included converting 30 old debts into five kinds of debts in the unified bonds according to the length of the original repayment period,i.e.A,B,C,D and E,which are deferred,interest rates on most of these bonds did not changed,and the repayment method was unified into two repayments of principal and interest per year;issuing a large amount of new debt.After the reorganization,the government’s financial expenditure was temporarily eased.But due to greatly extending the repayment period,the liquidity risk of banks increased,and the utility decreased.Therefore,this natioanl debt consolidation is a not pareto change.Thirdly,from the period of Beijing Government to the period of Nanjing National Government,the relationship between the government and the bank undergone a process from "weak government" and“strong market" to "political and economic exchange" cooperation and then to "big government" and "small market".In 1921,1932 and 1936,the bank-government relationship corresponded to the above three stages respectively,which was also the main reason why the national debt consolidation in 1936 was not Pareto change,while the national debt consolidation in 1921 and 1932 was Pareto efficient.In 1921,the bank played a leading role in the national debt consolidation.The specific consolidation method was formulated by Zhang Jia’ ao who was on behalf of bankers,which not only alleviated the burden of national debt,but also safeguarded interests of banks.In 1932,the government and the Bank jointly discussed the consolidation methods,and finally worked out a specific interest rate reduction and postponement plan under the game between the two sides to achieve a win-win situation.The essence of national debt consolidation in 1936 was a government intervention under the background of financial control.The government forced the consolidation of national debt in order to improve financial capacity.Fourth,the national debt consolidation is essentially a confrontation process between the bank’s own interests based on the credit system and the public financial demand for financial resources tends to be unlimited.Reasonable restraint of public power,government financial behavior and the impact of officials on policy continuity is the key to ensure the pareto efficient of national debt consolidation and the sustainable development of national debt policy.In addition,optimizing the interest rate structure,term structure and investor structure of national debt are also the main factors to ensure the benign development of national debt.Three national debt consolidation has been more than 80 years ago,the economic system and social development level had a upside down,and the local government debt equivalent to national debt,but the fiscal function and financial attributes of government debt,and the game relationship between government and bank as well as the gaol of improving debt policies has not changed.Therefore,the three national debt consolidation in the Republic of China serves as a historical window to study the current government debt restructuring and could be some help of the current solution to the local debt problem.