The Research Of Fiscal Default Risk In China

In 2007 the global financial crisis exposed, and series of positive measures were taken by the government. Gradually, the global economy was recovering in 2009.However,because of the bursting of bubble economy, the follow-up impact of financial crisis in 2007 is just beginning to appear. For example, the debt crisis in Dubai, Greek. At the same time, European countries also have caught the edge of the debt crisis. At present, the global is in the high rate of national debt crisis which triggered by the U.S. sub-prime crisis, thus research of the fiscal default risk is necessary. In addition, fiscal reform in China has made great progress from a domestic point of view, and the demand of fiscal expenditure is huge. From 1998-2009,with more than ten consecutive years of budget deficits, the domestic debt balance increase rapidly. Furthermore, the fiscal system is relatively less than perfect, and the fiscal cost of rent-seeking is large, and the fiscal information is non-transparent, and the relationship between central and local government lacks of clarity, it is clearly that government has accumulated a large number of contingent liabilities when exercising the fiscal powers. Can be seen that both from the international environment and domestic point of view, it is necessary to study the fiscal default risk and then to grasp the size of fiscal default risk in China, and thus to manage the government debt better, to optimize revenue and expenditure structure, to minimize the fiscal default risk.Based on the balance sheet of government, this paper holds the point that the government's assets are the basic guarantees for ensuring the repayment of the government's debts, so if a government's assets are less than its liabilities, the fiscal default risk may occur. A simplified"liquidity assets"balance sheet of government is constructed firstly based on Chinese reality, and then by using of the balance sheet, the Chinese fiscal directed debt default risk between the years of 1998 to 2008 is analyzed while the risk between 2009-2010 is also forecasted as well. It shows that the default risk between the years of 2003 to2006 was relatively stable and not so high in generl, but the risk in the years before or after such period was in a much higher level under the influence of the each financial crisis broke out around the world. It can be seen that the impact of financial crisis to fiscal default risk is significant. At the same time, this result also shows that the positive fiscal policy could availably reduce fiscal default risk in short-term, and the effect is similar of the 1997 Asian financial crisis and the 2007 U.S. sub-prime mortgage crisis on Chinese fiscal default risks, to other words fiscal default risk will have a trend of"big-small-big"owing to the positive fiscal policy within a few years after the outbreak of the financial crisis. Finally, by introducing the government contingent liabilities, the research provides that the Chinese fiscal won't be safe unless the government contingent liabilities is no more than 24 trillion RMB by detecting the fiscal default risk under the government contingent liabilities.