Government Contingent Liabilities And Financial Risk

The government contingent liability is one of the central elements of the financial risk .With establishment of the socialist market-oriented economic structure , governments of China at all levels especially the local governments need large amount of funds to push the development of economy . As the "Budget Law " stipulates definitely that the local governments have no rights to issue bonds , which makes local government's financing channels are very narrow. In financial constraints, local governments have to do everything possible to raise funds from various channels. Such as through the formation of the companies financing, the use of government guarantees for enterprise loans, to the international financial institutions for loans and bonds for on-lending to the central government credit . Therefore, China's current budget only shows the part of the activities, the government can not cover all financial activities, especially for divorced from the budget outside the government system. Government contingent liabilities lack of effective identification, quantification, reporting and disclosure system which has lead to continuing accumulation of debt, and the lack of management in government contingent liabilities which are considerable hidden and latent sexual has brought about the following routes : government contingent liabilities â†'direct government debt. This caused the total contingent liabilities and financial risk are difficult to grasp, thereby operating on the financial stability and sustainable economic development continues to be difficult . Financial risk is one of the most serious social risks. From the countries of the world, such risks without the timely control and defuse means that no other force can stop it in the whole society , maybe it provides the most serious consequences. Therefore, we must guard against and defuse financial risks by seriously studying the government contingent liabilities. The purpose of research on government contingent liabilities is to help governments at all levels have a more sober understanding , and to make targeted corresponding institutional arrangement , strengthen management through the analysis of the formation of government contingent liabilities and its' potential positive and negative effects . Thus , governments can make use of the positive role of the government debt so as to reduce financial risks while possible eliminating irregulargovernment contingent liabilities arising from the roots.The paper starts from defining the government contingent liabilities and financial risks, makes it clear which elements the government contingent liabilities include, the relationship between the government contingent liabilities and financial risks. On this basis , the paper analysizes the total liabilities of the Chinese government and the formation reason of the government contingent liabilities. After further analysis of the financial risks and management of contingent liabilities in typical countries , the ideas would be made for Chinese government to defuse contingent liabilities and financial risks .