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Will Rising Debt in China Lead to a Hard Landing?

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  • Wang Man Cang
  • Zhou Ming Matt

Abstract

Moody has recently downgraded China's sovereign debt, which's Moody's first downgrade for the country since 1989. The objective of this study is to get an insight into the local and regional government debt in China, analyze the key factors, and evaluate the economic risks. Based on the published data since 1996, the granger causality test is performed to find out the relationship between local government debt level, the fiscal income, GDP growth rate and CPI. Some major findings are: i) local government debt is accumulated through more spending on economic development and less funding obtained from the revenue sharing scheme between governments. ii) fiscal income and GDP growth rate have positive impact on the increase of local government debt. iii) CPI increase shows negative impact on the local government debt. It¡¯s projected that in the coming years, slower growth and less income with a stable CPI could slow down debt accumulation. The Chinese government should monitor the risk factors closely and use risk mitigation tools to avoid a hard landing.

Suggested Citation

  • Wang Man Cang & Zhou Ming Matt, 2017. "Will Rising Debt in China Lead to a Hard Landing?," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(9), pages 60-69, September.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:9:p:60-69
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    References listed on IDEAS

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    More about this item

    Keywords

    government debt; China; GDP growth rate; economic risk; hard landing;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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