Study Of The Global Financial Crisis, China's Financial Stability

Because of the impact of the global financial crisis, the 4 trillion in fiscal stimulus package will make the deficit ratio, debt dependency increase significantly in 2009 and 2010. As a result, the fiscal risk will increase significantly as well. Debt-to-GDP ratio is far lower than the international warning line which is 45%, but we still have to guard against fiscal risks increase, especially the local government contiflgent liabilities may become a major threat to the fiscal stability of China in the future. In this paper, the sustainability of government debt intertemporal budget constraint model is used to test Chinese empirical data. The conclusion is that the sharp increase of public debt will reduce the market value of bonds and put pressure on rise of interest rate, which can crowd out the investment of private sector and government. Besides, china will face great pressure on inflation in 2009 and 2010, which will also crowd out the effect of positive fiscal policy. Therefore, the government should take appropriate policies according to the economic performance to maintain the fiscal stability in the future, which means the adoption of fiscal policy and monetary policy exit at the appropriate time.