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| Is China in a Debt Trap:Theory and Evidence |
| PENG Fangping, OUYANG Zhigang, ZHAN Kai, LIU Liang
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Business School, Sun Yat-Sen University
School of Finance, Zhongnan University of Economics and Law
Collaborative Innovation Center for 21st-Century Maritime Silk Road Studies,Guangdong University of Foreign Studies |
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Abstract This paper analyzes the mechanism of a debt trap in theory by using the nonlinear model predictive control method. The results show that when the debt is at a low level, the debt has a positive influence on the real economy. But with the rising debt level, the real economy is downward after excessive debt reached a certain threshold which means the economy in a debt trap. Empirical studies confirm the above theoretical analysis, and show that China's economy has fallen into the debt trap from firm's evidence. The policy implications of the above findings are that quantitative monetary stimulus policies are not conducive to solving the current economic slowdown. On the contrary, the way of cutting interest rates, capital restructuring to stimulate investment should be adopted.
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Received: 23 February 2016
Published: 18 January 2018
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