China's Local Government Debt Management System Research

China's "Budget Law" states:"the budgets of local government at all levels must be made in accordance with the principle of living with one's own means, maintaining the balance of payments, and excluding the possibility of deficits." Nevertheless, some local governments still have government debts. In fact, the accumulation of our local government debts has generally experienced four stages:the incumbent stage at the beginning of reform and opening-up, the elementary stage after the tax system reform in 1994, the growth stage after the Asian financial crisis in 1997, and the explosion stage after the outbreak of the global financial crisis in 2008. According to predictions by some agencies, China's local government debts have reached over 8 trillion RMB in total. Such a large scale of debts has brought about enormous risks to local governments'financial operation and local economic development.In 2008, the Department of Local Government Debt Management was established in the Budget Division in the Ministry of Finance to specifically manage local government debts. Its establishment marks a start of the central government to regulate and manage local government debts. However, as our steps to manage local government debts started late, and therefore we lack relevant experience and need to learn from the advanced experience foreign governments have shown in managing their debts. Meanwhile, we must have a good knowledge of our national conditions and find out the root causes of the formation and accumulation of our local government debts before we suit the remedy to the case. In this context, we must establish a management system of our local government debts suited to our national conditions and effective in the management of local government debts with the ultimate goal of regulating local government's borrowing behavior, controlling the scale and risks of local government debts, and ensuring the financial security of local government.Using the methodology of comparative analysis, the paper introduces the status quo of China's local government debts, analyzes the causes of its formation and accumulation as well as the experiences that foreign local governments have in managing their debts, and draws on their successful experiences and lessons to create a management system of local government debts suited to our national conditions. The paper has the following five parts:The first part is the introduction, in which the research background and significances of this paper is explained, and a literature review on this scholarship both at home and abroad is made.The second part makes a general introduction of China's local government debts. It first introduces the definition of local government debts, clarifies the research objective of this paper, analyzes the current scale of China's local government debts, presents the current patterns of loan borrowing by China's local governments, and finally concludes the possible consequences that risks of local government debts may inflict on our economic society.In the third part, the author analyzes the causes of how our local government debts come into being. It first comments some popular explanations to the issue such as "theories of financial regime and macro-policies" before exploring the root causes of local government debts'formation and accumulation in light of the administrative management system, the system of investment and financing, and the debt management system.In the fourth part, the author compares the debt management experience that foreign local governments have and draw on their successful experience. The author selects four representative countries, namely, U.S., Japan, Brazil, Columbia, for this comparative study, and then shows what inspirations their experience can give to our management systems of local government debts.In the fifth part, the author's thoughts on the establishment of a new management system of local government debts are presented. It discusses how to build a perfect management system of our local government debts, manage the financial operation of local government debts, build a controlling system of local government debt risks, and establish a supervision mechanism of monitoring local government debts.