Research On The Risk Of China's National Debt

As an effective tool to regulate economy, national debt has played an irreplaceable role in the economic activities of governments among various countries. However, from the Latin American debt crisis far back in the early 1980s to the recent Europe's sovereign-debt crisis, countless examples of runaway debts have caused severe damage to the whole economies in these nations and sowed harvests of groans and tears and ipso facto, serve to be eloquent reminders of the other side of the coin. The enormous power of public debt, which is supposed to promote economic growth, can only have its due effect when properly harnessed. Contrarily, ignorance of the growth of the scale of national debt could be an action as dangerous as dangerous can be. The excessively accumulated debt scale may lead to economic and financial risk which could eventually seriously jeopardize the whole society.It has been nearly thirty years since the central government of China decided to reissue national debt. In reading the history of this phase, we could find that the issuance of national debt has surged after the 1990s, especially after the proactive fiscal policy adopted in 1998 in order to reverse the possible economic slowdown caused by the Asian financial crisis. Although the central government tried to transform fiscal policy from proactive to prudent in 2005, the suddenly emerged subprime crisis obstructed this process. History repeats itself, the central government reactivated proactive fiscal policy and thus the issuance of national debt soared again in the course of recent years. This phenomenon cannot but bring us the following questions. What is the risk status of China's national debt? What kind of measures should we take to control its risk? This thesis tried to analysis these issues and gives a reasonable answer.At first, the thesis gives the definitions of national debt and national debt risk. Since national debt essentially belongs to the sphere of credit, risk is inherently rooted. On this basis, the thesis classifies the national debt risk and states that credit risk and market risk will be mainly assessed as a representation of global risk.Among the several manifestations of national debt risk, credit risk is the most fundamental and important one. Other kinds of risks may at last show themselves via credit risk. Consequently, this thesis firstly uses conventional index to analysis the credit risk. The safety margins are deliberately adjusted to suit the particular situation in China, instead of blindly deferring to the Maastricht Treaty.Considering the drawbacks of traditional analysis which pays a lot of attention to credit risk while overlooking other kinds, this thesis borrows ideas from the methods of assessing and managing market risk utilized by private organizations and tries to use the value at risk method to assess the market risk of nation debt.At last, on the basis of the assessment of the risk of national debt, the thesis discusses several measures to control debt risk. The measures include promoting the transformation of economic growth mode, optimizing debt structure, accelerating the marketization of national debt, establishing and improving the sinking fund system, etc.