Reform to ease debt risks

A financial reserve, a control framework and rational division of power between governments will help balance the books

The greatest risk in the present-day global economy is the continuous exacerbation of sovereign debt risks, which are haunting both developed and developing countries. China is no exception. Its government debts have recently caught the attention of the world, with experts and scholars coming forward one after another to argue that China's debts have reached a dangerous level and will soon spiral out of control and therefore China is heading for a debt crisis.

However, no one can accurately assess China's current debt situation, unless their judgment is based on a scrutiny of the country's sovereign balance sheet and an examination of the transmission mechanism behind it. All developed countries now deeply mired in the sovereign debt crisis have been following the path of low growth, big deficits and high liabilities, and have negative net assets. China, however, has opted for the development model of high growth, small deficits and low liabilities. Moreover, China won't fall into a debt crisis because it has enough sovereign assets to pay for its sovereign debts. China has also not come near to the international line in terms of financial deficits or debt ratio.