ABSTRACT
The growing government budget deficits in China have recently attracted the increasing attention of economists not only because China’s economic growth has recently outperformed its counterparts in the world but also because lasting fiscal expansions have been a main engine for the recent robust economic growth in China. Is the pattern of China’s growing government debt and fiscal deficits sustainable into the future? Many existing studies of the fiscal risk in China underline deficient fiscal revenues (Bahl and Wallace, 1995; Brean, 1998; Lin, 2000) or highlight the potential threat that stems from the large contingent public debt such as state-owned banks’ non-performing loans extended to other state-owned enterprises, and fiscal subsidies to the pay-as-you-go type social security system (Lardy, 1998; IMF, 2002; Krumm and Wong, 2002; Lin, 2003). Surprisingly few studies, however, have attempted to analyze the fiscal sustainability of China’s explicit public debt at the government level by examining the state budgetary data in the present value terms. The basic analytical framework in this study is therefore simply to follow the law of motion of government debt over time and thus assess the imbedded fiscal risk and sustainability in present value terms using the current and historical budgetary data. 2
