The Local Government Debt in China
The local government debt
Abstract: As China’s economy has increasingly grown at an incredible high speed about average 9.8% gain every year before the 2008 financial, and china has became the world second-largest economy. Local government plays an important role in keeping such a rapid growth through the large amount of investment. However, the local government debt has increased substantially, following the growth of total economy. And the problems and potential troubles brought by the local government debt have gradually drawn people’s attention. This paper introduced the related concepts of local government debt and analyses the potential debt risk as well as the cause of it, finally proposes some suggestions about the large scale of local government debt.
As we know, china’s economy is mainly driven by “the troikas”, investment, import-export trade, and consumption. And the investment conducted by the local government accounts for a large percentage of the three main channels of economic gain, like the infrastructure investment, culture and education investment and so on. Therefore the local government debt is defined as a kind of deficit which is caused by the imbalance of expenditure and income.
With the increase of expenditure, that means the income of local government should increase symmetrically. Otherwise, when the government expenditure exceeds the income, it tends to cause the local government debt and even the bankruptcy of the local government if the amount of the debt is large enough like Detroit filed for bankruptcy recently. To be specific, the debt can be divided into two categories, the implicit debt and the explicit debt. The implicit debt primarily consists of the debt from financial institutions, including the mortgage loan, trust investment etc., which makes up the main part of china’s local government debt.
The scale of china’s local government debt has extended in a very large degree these years. In 2011, the data from
Abstract: As China’s economy has increasingly grown at an incredible high speed about average 9.8% gain every year before the 2008 financial, and china has became the world second-largest economy. Local government plays an important role in keeping such a rapid growth through the large amount of investment. However, the local government debt has increased substantially, following the growth of total economy. And the problems and potential troubles brought by the local government debt have gradually drawn people’s attention. This paper introduced the related concepts of local government debt and analyses the potential debt risk as well as the cause of it, finally proposes some suggestions about the large scale of local government debt.
As we know, china’s economy is mainly driven by “the troikas”, investment, import-export trade, and consumption. And the investment conducted by the local government accounts for a large percentage of the three main channels of economic gain, like the infrastructure investment, culture and education investment and so on. Therefore the local government debt is defined as a kind of deficit which is caused by the imbalance of expenditure and income.
With the increase of expenditure, that means the income of local government should increase symmetrically. Otherwise, when the government expenditure exceeds the income, it tends to cause the local government debt and even the bankruptcy of the local government if the amount of the debt is large enough like Detroit filed for bankruptcy recently. To be specific, the debt can be divided into two categories, the implicit debt and the explicit debt. The implicit debt primarily consists of the debt from financial institutions, including the mortgage loan, trust investment etc., which makes up the main part of china’s local government debt.
The scale of china’s local government debt has extended in a very large degree these years. In 2011, the data from