China Local Government Debt

The pace of economic development of China has been attracting the attention of theworld in today’s rapid development of the global economy. The Local governments’investment and financing platform plays an important role in coping with theinternational financial crisis and promoting local economic growth. However, the localgovernment’s debt problem also appears. For the governments, from central to locallevels, especially for the local government, they are confronted with the greaterproportion of debt and the debt crisis is more serious, resulting in the widespread concernof the community.This article obtains from the local government debt motivation, analyzing theborrowing influence of the borrowing scale on economic growth and promotes sustainedeconomic steady growth while controls the financial crisis. This paper propose threetheoretical hypothesis to illustrate the relationship of local government debt andeconomic growth.(1) During the economic transformation period, the behavior ofborrowing debt made by local governments can accelerate local economic growth. Thispaper lists some eastern regions and central and western regions, which achieve theireconomy to a different level sine the reform and the open, analyses the relationshipbetween the size of the debt and economic growth of the local government, based on thepace of marketization and assumptions. This paper verifies the above theoreticalassumptions by building models;(2) The relationship between the scale of localgovernment debt and economic growth an inverted "U" in the developed areas;(3) Therelationship between the scale of local government debt and economic growth presentsan increasing relationship monotonically in some economically undeveloped areas.The conclusions are as follows:(1) China’s economic development requires localgovernments to moderate debt objectively. Local government debt promote the regional economy vigorously;(2) There are also many differences for the local governments ofscale of the borrowing, because the different developing strategies and the marketizationdegree. The relationship between the scale of local government debt and economicgrowth is an inverted “U” in the developed areas;The relationship between the scale oflocal government debt and economic growth presents an increasing relationshipmonotonically in some economically undeveloped areas;(3) Local government debtproblem exposes many problems such as fiscal decentralization system, accountingsystem,"achievement" evaluation mechanisms and risk accountability mechanisms. Theimplementation of the system requires the supervision mechanism of form a complete set.The lack of effective supervision of local government investment and financing behaviorin our country Increase s the local fiscal risk and affects the smooth running of ouroverall economy and regional economy sustainable growth.The paper from the system innovation and risk control proposes some policies:(1)To strengthen and improve our financial and distribution system, to further clarify therelationship between financial authority and powers between the central and localgovernments;(2) To improve the local tax system, standardize the transfer paymentsystem,to ease the financing platform adjust the lateral imbalance between the region inthe short term and the long term, to achieve equal access to social services in a long rungradually;(3)To establish local bonds system and guard against local government debtrisk, regulate the local financing platform, solve the local government capital financingsystem affectively, to innovate institutional mechanisms while promoting themechanism.;(4)To improve the government’s accounting system, establish the system ofgovernment accounting norms, reflect debt changes comprehensively in the form of a filesystem, by local government report;(5) To reform the local administrative assessmentsystem and practice local budgets of hard constraints;(6) To establish a system of localgovernments to issue bonds as soon as possible and strengthen local government debtfinancing capacity.