GUO Min;DUAN Yixuan;HUANG Yixuan
School of Banking & Finance, University of International Business and Economics;School of Banking & Finance, University of International Business and Economics;Chinese Academy of Fiscal Sciences
We firstly sorted out the sources of the local governments’ implicit liabilities and their different characteristics in different stages, and found that the local state-owned enterprises (SOEs) are important source of the implicit liabilities, which is a special feature of implicit liabilities in China. Among all the sources, the transformed financing platforms and general local SOEs are more normal, persistent and invisible, and are easily ignored sources of local governments’ implicit liabilities. Secondly, we focused on the local financing platform and general local SOEs, and studied the formation mechanism implicit liabilities and the influence of the implicit liabilities on the economic growth and the sovereign credit rating in a long-term, based on the special decentralized fiscal system in China and policy tool attribute of SOEs. We find that SOEs can help to smooth economic growth fluctuations at the expense of the implicit liabilities’ increase during the period of financial crisis. However, because of inefficiency in using the liabilities, the increased implicit liabilities will have negative effects on economic growth and sovereign credit rating. Finally, we studied the measurement of implicit contingent liabilities of local governments and forecasted the development of the local governments’ implicit contingent liabilities. The main difference in the implicit direct liabilities and the implicit contingent liabilities is that the time and scale of the implicit contingent liabilities are uncertain, which should be considered in the measurement. So, we established an index to measure the implicit contingent liabilities considering the scale of liabilities, the probability of liabilities, and correlations among the local SOEs. Then, we compared the index with the expectation that SOEs will not fail, and this comes from the expectation that the local governments will rescue or provide help to the local SOEs. After comparison, we find that although the expectation that SOEs will not fail is the precondition to form the implicit liabilities of the local governments, it is not the key to the risks of the implicit liabilities. The key to the high risks of implicit contingent liabilities is the local economic development and the efficiency of local SOEs. In the current external environment, faced with the downward pressure on the economy, the impact of the epidemic, China-US trade frictions and other adverse factors, it is important to properly handling the contradiction between the functions of SOEs and the implicit liabilities to improve the system of preventing systemic financial risks. The contributions of our study are as follows. First, we arrange the relationship between the implicit liabilities and the illegal borrowing (or a disguised borrowing), and find that it is a transition period during the period of 2015 to 2018 to establish a new system of local governments’ liabilities. This is helpful to understand the development of the local governments’ implicit liabilities. Second, we study the formation mechanism and measurement of local governments’ implicit liabilities, and enrich the sources of the local governments’ implicit liabilities. Third, we study the influence of the implicit liabilities before they become explicit, which is different from other papers. This is helpful to understand the implicit liabilities of local governments comprehensively. We can further study the relationship between the influence before the liabilities become explicit and that when the liabilities become explicit.
policy function of state-owned enterprises;implicit liabilities of local governments;economic impact
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