The policy of expanding domestic demand in the effectiveness of government bonds


Abstract: China since the latter half of 1998 to implement a proactive fiscal policy, that such a proactive fiscal policy to complete the mission out of the stage of history, has made remarkable achievements. It issuing treasury bonds as the main measures, but also start measures, but the impact of debt on our economy there is a dispute. We must then only on a positive financial policy issues among the issuing treasury bonds, analysis of China issued the following sources of funding and to invest in government bonds, as well as the impact on China's economy.

Keywords: sources of effective demand for bond funds to be expended


      
      One of China's proactive fiscal policy in the National Debt Policy


      
      From 1998 made the proactive fiscal policy, China began issuing a large number of treasury bonds every year to promote the proactive fiscal policy.


      
      1.
1 in 1998 the national debt policy in August 1998, the Fourth National People's Congress Standing Committee passed the budget adjustment programs. ① additional 100 billion yuan long-term bonds for the national budget earmarked for investment in infrastructure construction; ② will be the beginning of the budget for the Central Plains 18.0 billion in infrastructure construction projects to adjust for recurrent expenditure, to increase science and technology investment in education, too much business guarantee the basic living expenses for laid-off workers, retirees and full payment of pensions and increased expenditure on disaster relief.


      
      1.
2 in 1999 the national debt policy of early 1999, China issued 50 billion yuan long-term treasury bonds for infrastructure construction, mid-year, against the prevailing economic situation, but also additional 600 billion long-term government bonds. New debt is mainly used in construction of infrastructure, a number of key industries, technological innovation, and major projects and equipment inside, and high-tech industrialization, environmental protection and ecological construction, as well as science, education, infrastructure, and so on.


      
      1.
3 in 2000 the national debt policy in early 2000 released 1,000 billion long-term construction treasury bonds in the second half and to implement the budget adjustment programs, further issued 50 billion yuan long-term government bonds. This is a total of 150 billion yuan treasury bonds funds are mainly used to accelerate the construction of bond-financed projects, increase investments in infrastructure facilities in support of technological transformation of state-owned enterprises, increase western development and ecological environment construction, develop science and technology education. Mainly for: ① infrastructure projects. Including highways, tourist facilities in central and western regions. ② the water and ecological projects. Including irrigation infrastructure, and build new towns, returning farmland to forest and grassland, natural forest and grassland protection projects, control sources of sand around Beijing and Tianjin to start construction. ③ industrial restructuring. Including the technological transformation of enterprises, high-tech industrialization, supermarkets, road traffic, environmental protection facilities such as the localization of national defense technological transformation of enterprises, as well as bio-chips and other major technology project. ④ educational facilities. Including those resulting from colleges and universities to increase student enrollment and other school infrastructure, subsidies for the construction in central and western colleges and universities. ⑤ urban environmental projects. In 2000, the central government clearly put forward in principle on the bond construction fund new projects and concentrate on the completion of projects currently under construction.


      
      1.
4 in 2001 the national debt policy, 2001, the annual long-term construction treasury bonds issued 150 billion yuan. These, 1,000 billion yuan in building bonds to cover the initial infrastructure project under construction in the follow-up funding and project finishing. Characteristics of 50 billion yuan treasury bonds to support development of the west, mainly for the Qinghai-Tibet railway, west to east, natural gas and water diversion, ecological construction and some other major infrastructure construction.


      
      1.
5 in 2002 the national debt policy in 2002 will continue to issue 150 billion yuan of long-term bonds. Mainly used for construction bond project, the western development projects, focusing on enterprise reform, as well as water diversion, water conservation projects around Beijing and Tianjin, rural infrastructure and education, public security organs and other aspects of infrastructure.


      
      From the classical economic school of public debt harmful can be seen on the background of the times, when most countries in the monarchy period, the country's income is the ruler of their income, they are free to the extravagant and wasteful, in the case of income achieved through taxes, they are expenditure is still subject to income constraints, however, can issue bonds if so, more to stimulate consumption of the rulers. And, when capitalism is in a period of free competition, investment strong, the community is basically non-existent idle capital, government-issued bonds, is bound to extract capital from the production area, and then their rulers will be consumed. The transfer of capital from production to consumption, can not make profits, and in this context, the bonds are harmful to one's interest.


      
      2 the direction of China's expenditure of funds from treasury bonds and the role of

      
      China adopted a proactive fiscal policy and issuance of bonds under the socialist system of government is the government is a responsible government, and treasury bonds, government expenditures are rule-based, subjectively, the government simply does not exist to put the investment luxury consumed problems. The expenditure of funds from our bond can be seen, China's treasury bonds issued by the funds raised will primarily be invested in the three areas. Infrastructure construction, upgrading high-tech, education and scientific research. Reposted elsewhere in the paper for free download http://eng.hi138.com



      
      2.
1 The infrastructure spending bond funds in the provision of "public goods" of the expenditures, the preferred is a part of the infrastructure and basic industries, which is used for investment in basic industries. Basic industries in the reproduction process has a special status and role, it provided for the entire reproduction process, "co-production conditions." Marx believed that, as a condition of co-production of fixed assets, such as transportation systems, postal communications systems, drainage systems and other fixed assets, with the common, non-exclusive and indivisible, that has a "quasi-public goods," the general characteristics. Also, basic industries sector is the production and circulation departments necessary inputs, therefore, basic industries sector and all sectors associated with large inductance high lags behind the development of basic industries will constitute a comprehensive constraint on economic growth "bottleneck" . China's investment in infrastructure greatly reduces the process of economic development of China's basic industries of the bottleneck effect, the market provides a good environment for the development, led to private investment, promoting economic development.


      
      2.
2 The high-tech innovation expenditures since 1998, come up from 35.54 billion yuan in treasury bonds to support key industries, key enterprises, key products, technological innovation, but has also brought the community to increase input. Technological upgrading of enterprises a strong impetus to structural adjustment and industrial upgrading, the upgrading of industrial structure of China's economic growth model makes a qualitative change began to occur and promoting China's economic growth mode from extensive to intensive-type changes. If high-tech applications in the shipbuilding industry in the application of iron and steel industry, petrochemical industry, application, appliance industry, application, greatly enhanced the quality of the product, variety.


      
      2.
3 The expenditure on education and research education is a fundamental national development, China's bond funds also used in the construction of educational facilities, including the expansion of school buildings, educational facilities updates. And the Western universities subsidies. This regard, the expansion of domestic demand, but also to cultivate more talented people to provide a guarantee.

From our use of funds from treasury bonds, we can see that these funds are mainly used in the national economy and infrastructure related investments. While leaving a lot of debt, but also left a high-quality assets, is a production of nature. Thus, China's government bond, solely from the expenditure in this regard is not consistent with the classical theory of public debt hazardous conditions, on the contrary, from the Keynesian point of view, precisely describes the bonds could be expansion of effective demand and promote private investment, thereby promoting economic development .


      
      Three sources of China's treasury bonds


      
      Subscription through our national debt could be that the main the main source of funds from treasury bonds. Call the main body of China's national debt is divided into non-governmental organizations and public institutions, civil society organizations can also be divided into corporate and individual residents. Enterprises and non-bank corporate banking business. Public agencies have the central bank and government departments. The above organizations and institutions can be used as the purchaser of government bonds,

      
      3.1 non-governmental organizations, civil society organizations such as the purchase of bonds of residents and enterprises to purchase a savings bond for the purpose of hedging and investment purposes is not. Because the bond is a national credit guarantee, the risk is low and bond interest rate is generally higher than bank interest rates, so to purchase savings bonds can play a role in preservation, but its rate of return relative to investment in other areas is relatively sure that low. Thus, non-governmental organizations for the purchase of government bonds are generally idle funds of funds and the funds for consumer spending. In addition, the majority of funds of banking institutions also comes from household savings, this part of the funds while the residents of idle funds, but the banking institutions through financing, this part of the funds can be lent, for investment. So, to say the bank to buy government bonds will reduce the foreign loans, thereby reducing the number of corporate investment.


      
      3.2 Public sector governments and central banks to buy treasury bonds to buy government bonds, government bonds to buy the object and purpose of civil society organizations to buy government bonds, as their funding sources will mainly be idle funds in this sector. The central bank buys government bonds is intended to regulate the economy. The central bank to buy government bonds have a direct purchase and purchased in the open market. In two ways through the central bank's credit directly increase the supply of base money, this part of the funds do not come from a country's economic sectors, existing funds, but by the credit created.


      
      From the above analysis we can see, the first source of funding bonds may have an impact consumer spending, but the effect of bond assets will greatly reduce this impact, another source of such funds nor will production areas investment implications. The second bond may reduce the number of funding sources for the production of the field of investment funds. A third source of bond funds is clearly not the available funds, so it will not cause the production impact. Reposted elsewhere in the paper for free download http://eng.hi138.com



      
      4 Effect of bond assets of the impact of aggregate demand


      
      First proposed the assets of public debt is well-known economist Lerner effect. Effect is that the assets of public debt issuance would increase debt held by the public assets and public debt associated with hallucinations, people feel that their own wealth to subscribe for bonds increased, leading to non-governmental public debt held by the increase in consumer spending. In fact, since the Keynesian revolution, macroeconomic scholars turned attention to a large extent, effect of bond assets. Issuing bonds to increase the population of financial assets, on the one hand is the income effect so that the residents feel better off than before, thereby increasing consumer spending; the other hand, the substitution effect to enable people to avoid labor, increased leisure, thereby increasing consumption. In other words, the issue of public debt has to stimulate increased consumption demand.


      
      Through our national debt expenses and sources of analysis, we can see that China's government bond funds are mainly used in a number of productive infrastructure and technological upgrading the above, there are productive and can generate revenue, and, these inputs increase in private investment confidence in the operation of the economy as a whole provides the basic conditions, thereby stimulating private sector investment, promoting development of national economy. Judging from China's source of funds from treasury bonds of view, our national debt to the private sector investment funds little impact, which means there is no looting our treasury bond funds to productive capital. It is precisely the idle private capital used in the production fields. Either from the classical economic theory or from the Keynesian economic theory is, in our country to implement a proactive fiscal policy, the issuance of treasury bonds during the period, a significant impetus to the implementation of proactive fiscal policy, and promoting economic development.

References:

[1] Chan. Proactive fiscal policy and financial risk. Renmin University of China Press, .2003.

[2] Dong Yuan. Public debt and economic growth. China Development Press .2000.

[3] Liu Rong-Chang, Zhao Zhiyun. Forefront of China's financial theory Ⅲ. Social Sciences Academic Press .2003. Reposted elsewhere in the paper for free download http://eng.hi138.com
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The policy of expanding domestic demand in the effectiveness of government bonds

Abstract: China since the latter half of 1998 to implement a proactive fiscal policy, that such a proactive fiscal policy to complete the mission out of the stage of history, has made remarkable achievements. It issuing treasury bonds as the main measures, but also start measures, but the impact of debt on our economy there is a dispute. We must then only on a positive financial policy issues among the issuing treasury bonds, analysis of China issued the following sources of funding and to invest in government bonds, as well as the impact on China's economy.
Keywords: sources of effective demand for bond funds to be expended

      
      One of China's proactive fiscal policy in the National Debt Policy

      
      From 1998 made the proactive fiscal policy, China began issuing a large number of treasury bonds every year to promote the proactive fiscal policy.

      
      1.1 in 1998 the national debt policy in August 1998, the Fourth National People's Congress Standing Committee passed the budget adjustment programs. ① additional 100 billion yuan long-term bonds for the national budget earmarked for investment in infrastructure construction; ② will be the beginning of the budget for the Central Plains 18.0 billion in infrastructure construction projects to adjust for recurrent expenditure, to increase science and technology investment in education, too much business guarantee the basic living expenses for laid-off workers, retirees and full payment of pensions and increased expenditure on disaster relief.

      
      1.2 in 1999 the national debt policy of early 1999, China issued 50 billion yuan long-term treasury bonds for infrastructure construction, mid-year, against the prevailing economic situation, but also additional 600 billion long-term government bonds. New debt is mainly used in construction of infrastructure, a number of key industries, technological innovation, and major projects and equipment inside, and high-tech industrialization, environmental protection and ecological construction, as well as science, education, infrastructure, and so on.

      
      1.3 in 2000 the national debt policy in early 2000 released 1,000 billion long-term construction treasury bonds in the second half and to implement the budget adjustment programs, further issued 50 billion yuan long-term government bonds. This is a total of 150 billion yuan treasury bonds funds are mainly used to accelerate the construction of bond-financed projects, increase investments in infrastructure facilities in support of technological transformation of state-owned enterprises, increase western development and ecological environment construction, develop science and technology education. Mainly for: ① infrastructure projects. Including highways, tourist facilities in central and western regions. ② the water and ecological projects. Including irrigation infrastructure, and build new towns, returning farmland to forest and grassland, natural forest and grassland protection projects, control sources of sand around Beijing and Tianjin to start construction. ③ industrial restructuring. Including the technological transformation of enterprises, high-tech industrialization, supermarkets, road traffic, environmental protection facilities such as the localization of national defense technological transformation of enterprises, as well as bio-chips and other major technology project. ④ educational facilities. Including those resulting from colleges and universities to increase student enrollment and other school infrastructure, subsidies for the construction in central and western colleges and universities. ⑤ urban environmental projects. In 2000, the central government clearly put forward in principle on the bond construction fund new projects and concentrate on the completion of projects currently under construction.

      
      1.4 in 2001 the national debt policy, 2001, the annual long-term construction treasury bonds issued 150 billion yuan. These, 1,000 billion yuan in building bonds to cover the initial infrastructure project under construction in the follow-up funding and project finishing. Characteristics of 50 billion yuan treasury bonds to support development of the west, mainly for the Qinghai-Tibet railway, west to east, natural gas and water diversion, ecological construction and some other major infrastructure construction.

      
      1.5 in 2002 the national debt policy in 2002 will continue to issue 150 billion yuan of long-term bonds. Mainly used for construction bond project, the western development projects, focusing on enterprise reform, as well as water diversion, water conservation projects around Beijing and Tianjin, rural infrastructure and education, public security organs and other aspects of infrastructure.

      
      From the classical economic school of public debt harmful can be seen on the background of the times, when most countries in the monarchy period, the country's income is the ruler of their income, they are free to the extravagant and wasteful, in the case of income achieved through taxes, they are expenditure is still subject to income constraints, however, can issue bonds if so, more to stimulate consumption of the rulers. And, when capitalism is in a period of free competition, investment strong, the community is basically non-existent idle capital, government-issued bonds, is bound to extract capital from the production area, and then their rulers will be consumed. The transfer of capital from production to consumption, can not make profits, and in this context, the bonds are harmful to one's interest.

      
      2 the direction of China's expenditure of funds from treasury bonds and the role of

      
      China adopted a proactive fiscal policy and issuance of bonds under the socialist system of government is the government is a responsible government, and treasury bonds, government expenditures are rule-based, subjectively, the government simply does not exist to put the investment luxury consumed problems. The expenditure of funds from our bond can be seen, China's treasury bonds issued by the funds raised will primarily be invested in the three areas. Infrastructure construction, upgrading high-tech, education and scientific research. Reposted elsewhere in the paper for free download http://eng.hi138.com



      
      2.
1 The infrastructure spending bond funds in the provision of "public goods" of the expenditures, the preferred is a part of the infrastructure and basic industries, which is used for investment in basic industries. Basic industries in the reproduction process has a special status and role, it provided for the entire reproduction process, "co-production conditions." Marx believed that, as a condition of co-production of fixed assets, such as transportation systems, postal communications systems, drainage systems and other fixed assets, with the common, non-exclusive and indivisible, that has a "quasi-public goods," the general characteristics. Also, basic industries sector is the production and circulation departments necessary inputs, therefore, basic industries sector and all sectors associated with large inductance high lags behind the development of basic industries will constitute a comprehensive constraint on economic growth "bottleneck" . China's investment in infrastructure greatly reduces the process of economic development of China's basic industries of the bottleneck effect, the market provides a good environment for the development, led to private investment, promoting economic development.

      
      2.2 The high-tech innovation expenditures since 1998, come up from 35.54 billion yuan in treasury bonds to support key industries, key enterprises, key products, technological innovation, but has also brought the community to increase input. Technological upgrading of enterprises a strong impetus to structural adjustment and industrial upgrading, the upgrading of industrial structure of China's economic growth model makes a qualitative change began to occur and promoting China's economic growth mode from extensive to intensive-type changes. If high-tech applications in the shipbuilding industry in the application of iron and steel industry, petrochemical industry, application, appliance industry, application, greatly enhanced the quality of the product, variety.

      
      2.3 The expenditure on education and research education is a fundamental national development, China's bond funds also used in the construction of educational facilities, including the expansion of school buildings, educational facilities updates. And the Western universities subsidies. This regard, the expansion of domestic demand, but also to cultivate more talented people to provide a guarantee.
From our use of funds from treasury bonds, we can see that these funds are mainly used in the national economy and infrastructure related investments. While leaving a lot of debt, but also left a high-quality assets, is a production of nature. Thus, China's government bond, solely from the expenditure in this regard is not consistent with the classical theory of public debt hazardous conditions, on the contrary, from the Keynesian point of view, precisely describes the bonds could be expansion of effective demand and promote private investment, thereby promoting economic development .

      
      Three sources of China's treasury bonds

      
      Subscription through our national debt could be that the main the main source of funds from treasury bonds. Call the main body of China's national debt is divided into non-governmental organizations and public institutions, civil society organizations can also be divided into corporate and individual residents. Enterprises and non-bank corporate banking business. Public agencies have the central bank and government departments. The above organizations and institutions can be used as the purchaser of government bonds,

      
      3.1 non-governmental organizations, civil society organizations such as the purchase of bonds of residents and enterprises to purchase a savings bond for the purpose of hedging and investment purposes is not. Because the bond is a national credit guarantee, the risk is low and bond interest rate is generally higher than bank interest rates, so to purchase savings bonds can play a role in preservation, but its rate of return relative to investment in other areas is relatively sure that low. Thus, non-governmental organizations for the purchase of government bonds are generally idle funds of funds and the funds for consumer spending. In addition, the majority of funds of banking institutions also comes from household savings, this part of the funds while the residents of idle funds, but the banking institutions through financing, this part of the funds can be lent, for investment. So, to say the bank to buy government bonds will reduce the foreign loans, thereby reducing the number of corporate investment.

      
      3.2 Public sector governments and central banks to buy treasury bonds to buy government bonds, government bonds to buy the object and purpose of civil society organizations to buy government bonds, as their funding sources will mainly be idle funds in this sector. The central bank buys government bonds is intended to regulate the economy. The central bank to buy government bonds have a direct purchase and purchased in the open market. In two ways through the central bank's credit directly increase the supply of base money, this part of the funds do not come from a country's economic sectors, existing funds, but by the credit created.

      
      From the above analysis we can see, the first source of funding bonds may have an impact consumer spending, but the effect of bond assets will greatly reduce this impact, another source of such funds nor will production areas investment implications. The second bond may reduce the number of funding sources for the production of the field of investment funds. A third source of bond funds is clearly not the available funds, so it will not cause the production impact. Reposted elsewhere in the paper for free download http://eng.hi138.com



      
      4 Effect of bond assets of the impact of aggregate demand

      
      First proposed the assets of public debt is well-known economist Lerner effect. Effect is that the assets of public debt issuance would increase debt held by the public assets and public debt associated with hallucinations, people feel that their own wealth to subscribe for bonds increased, leading to non-governmental public debt held by the increase in consumer spending. In fact, since the Keynesian revolution, macroeconomic scholars turned attention to a large extent, effect of bond assets. Issuing bonds to increase the population of financial assets, on the one hand is the income effect so that the residents feel better off than before, thereby increasing consumer spending; the other hand, the substitution effect to enable people to avoid labor, increased leisure, thereby increasing consumption. In other words, the issue of public debt has to stimulate increased consumption demand.

      
      Through our national debt expenses and sources of analysis, we can see that China's government bond funds are mainly used in a number of productive infrastructure and technological upgrading the above, there are productive and can generate revenue, and, these inputs increase in private investment confidence in the operation of the economy as a whole provides the basic conditions, thereby stimulating private sector investment, promoting development of national economy. Judging from China's source of funds from treasury bonds of view, our national debt to the private sector investment funds little impact, which means there is no looting our treasury bond funds to productive capital. It is precisely the idle private capital used in the production fields. Either from the classical economic theory or from the Keynesian economic theory is, in our country to implement a proactive fiscal policy, the issuance of treasury bonds during the period, a significant impetus to the implementation of proactive fiscal policy, and promoting economic development.
References:
[1] Chan. Proactive fiscal policy and financial risk. Renmin University of China Press, .2003.
[2] Dong Yuan. Public debt and economic growth. China Development Press .2000.
[3] Liu Rong-Chang, Zhao Zhiyun. Forefront of China's financial theory Ⅲ. Social Sciences Academic Press .2003. Reposted elsewhere in the paper for free download http://eng.hi138.com

National Debt Research Papers