In 2012, three research teams led by me, Dr. Cao Yuanzheng, Chief Economist of Bank of China, and Dr. Ma Jun, Chief Economist of Deutsche Bank Greater China, carried out research on China's national assets and liabilities at almost the same time, and successively published long analysis reports. In the Chinese research community, it is rare for multiple research teams to discuss a dry topic that is purely "imperial art". That's because, since the end of 2011, many foreign research institutions and investment banks have taken advantage of China's local government financing vehicle debt problems to surface and the decline in economic growth rate, and have been singing down China. A handful of international rating agencies have even downgraded China's sovereignty on that basis. Naturally, Chinese economists cannot sit idly by. It is our duty to compile China's national balance sheet (especially the government balance sheet), deeply analyze the source, status, characteristics and development prospects of China's government debt at all levels, and assess sovereign debt risks. Second, the balance sheet is originally an indispensable basic tool for enterprises to implement scientific management. Based on the accrual basis, the balance sheet reflects the total liabilities and its structure at a certain point in time on the debtor side, revealing the amount of debt that the enterprise needs to pay now and in the future, the urgency of debt repayment and the pressure of debt repayment; On the asset side, it reflects the total assets of the enterprise and its composition, revealing the economic resources, distribution and profitability of the enterprise at a certain point in time. The combination of liabilities and assets can be used to evaluate the performance of enterprises, analyze their financial resilience and security, and consider their solvency and operational stability. In the middle of the last century, the American economist Goldschmies began to attempt to introduce the unique analytical capabilities of balance sheets into national governance (see Goldsmith and Lipsey, 1963; Goldsmith, 1982) and piloted the sub-sectoral and integrated national balance sheet. Since then, advanced economies have followed suit. To date, most OECD countries publish financial balance sheets that do not contain physical assets. The impressive balance sheet of the state in the field of national governance and even economic analysis was after the Latin American crisis of the 90s. Unlike past crises, Latin American crises are characterized by debt crises that are typically characterized by excessive borrowing. In this way, the balance sheet has naturally won the favor of the international community as an analytical framework that can accurately depict a country's debt risk and assess its ability to repay its debt. After the introduction of the balance sheet as a mainstream analysis tool, a series of new results were quickly achieved. What is particularly refreshing is the reinterpretation of past crises, in particular the transmission process of crises and the interpretation of a number of particular phenomena in the process of recovery. In this regard, the research of Koo Chaoming, chief economist of the Nomura Research Institute in Japan, is the most famous (Koo Chaoming, 2008). In Koo's view, mainstream economics lacks the essence of explaining the causes of the Great Depression of the last century and Japan's "lost 20 years" since the 90s. He believes that the problem of the crisis is not on the supply side of money, but on the demand side of money. The economic recession is due to the collapse of market prices after the bursting of the stock market and real estate market bubbles, which caused the assets of enterprises that overextended during the bubble period to shrink significantly, resulting in an imbalance in their balance sheets and a serious increase in the scale of liabilities exceeding their assets. As a result, the enterprise, even if it is still operating, has fallen into technical bankruptcy. The important problem is that, in this case, most companies shift their business objectives from "profit maximization" to "debt minimization", that is, while reducing or even stopping borrowing, they tend to use all the cash flow they can to pay down debt, that is, spare no effort to "repair the balance sheet". If many companies pursue this "debt minimization" strategy, society as a whole will form a "synthetic fallacy" that does not produce and invest and focuses on debt repayment, so even if banks are willing to provide loans, no companies will come to borrow. The credit crunch situation in the whole society has taken shape. The recovery process from the crisis has thus been delayed. The "once-in-a-century" global economic crisis has once again highlighted the charm of asset-liability analysis. The crisis is still due to the fact that households, companies, and governments in developed countries are operating or consuming in debt, and financial institutions are correspondingly highly leveraged. The cause is this, and the recovery of the crisis is obviously a necessary condition for "deleveraging". However, deleveraging involves at least two issues. First, deleveraging requires a lot of savings and a lot of capital investment; The savings rate is not easy to increase, and the capital is even harder to find. Second, deleveraging, as the main path for economic recovery, will fully trigger the process of "repairing the balance sheet". In this process, when economic agents receive additional funds, their preference is not to engage in normal economic activities that monetary authorities want to generate, such as consumption, production and investment, but to use them to replenish capital, reduce debt, and "repair" the balance sheet. Thus, for a long period of time, injecting money into the economy will have the effect of stagnant consumption, sluggish investment, and a contraction in credit markets. A brilliant illustration of this happens in the United States. Although the dollar released by the Federal Reserve and the Treasury has reached the level of flooding liquidity in the United States and the world for several years, the credit market in the United States is still shrinking, so much so that the Fed's quantitative easing operation has increased and its balance sheet has expanded three times as never before. In particular, we would like to point out that this time, China has also really felt the impact of assets and liabilities. On the one hand, corporate debt and government debt at all levels are rising, and their seriousness has reached a level that can be exploited by malicious actors; On the other hand, the supply of money and credit has expanded dramatically, but the real economy still feels that "loans are difficult and expensive". Complex questions like these need to be answered quickly. Preparing China's national balance sheet, first of all, "knowing the situation" is obviously the basis and prerequisite for answering all questions. The research group of "China National Balance Sheet Research" of the Chinese Academy of Social Sciences was established in 2011, and the first batch of results was formed in 2012. At that time, we had already compiled China's sovereign balance sheet (2000-2010), the main results of which were published in Economic Research Journal No. 6-7 in 2013. The research results of 185561 research group have been cited by the International Monetary Fund (IMF, 2013), the People's Bank of China Research Agency, and some well-known investment banks at home and abroad. In addition, English-language papers on China's sovereign balance sheet research have been included in monographs published by the International Monetary Fund 185562. In September 2012, the research group held the "International Seminar on China's National Balance Sheet Analysis", attended by more than 60 well-known scholars from People's Bank of China, the National Bureau of Statistics, the World Bank, the International Monetary Fund and related fields. The experts naturally did not hesitate to praise, but also sharply put forward suggestions for further improvement and development. These suggestions guided the writing of this book. This book builds on the results of the 2012 study, comprehensively updates the data, and adds the compilation and analysis of China's national balance sheet. The key findings of this book can be summarized as follows: 1. In 2011, China's national net assets (non-financial assets plus net external assets) exceeded 300 trillion yuan. From 2007 to 2011, China's national balance sheet expanded sharply: the total national assets increased from 284.7 trillion yuan to 546.5 trillion yuan; Total liabilities increased from 118.9 trillion yuan to 242 trillion yuan; Net assets increased from 165.8 trillion yuan to 304.5 trillion yuan. All three indicators have nearly doubled in five years and have all grown faster than nominal GDP over the same period. The country's overall asset-liability ratio, that is, the ratio of total liabilities to total assets, showed an overall upward trend, especially in the two years from 2009 to 2010, which were greatly affected by the financial crisis. Since then, although it has fallen slightly in 2011, it is still well above the level of 2007. This structural change suggests an increase in reliance on debt financing in the formation of national assets, which in turn leads to a corresponding increase in debt risk. 2. The increase in national net worth continues to be less than that of GDP in that year, indicating that not all GDP has formed a real accumulation of wealth. In other words, a significant portion of the GDP we output is ineffective. This is because GDP indicators have certain inherent flaws: some ineffective investment (corresponding to overcapacity) and even activities that destroy resources and the environment are included in GDP, so these parts must be excluded from wealth formation. Taking 2010 as an example, the gap between the increase in net assets and GDP was as high as 7.5 trillion yuan, accounting for 18.7% of GDP in that year. While it cannot be asserted that all 7.5 trillion yuan was wasted or lost, it at least suggests that the quality of GDP for the year is very problematic. 3. In recent years, the proportion of inventory in total assets has increased sharply, indicating that the problem of overcapacity is very serious. There have always been two explanations for inventories and their changes: they may reflect enterprises' expectations of economic recovery (more in the form of active replenishment of inventories, which can be understood as an active inventory increase) or they may be related to the serious overcapacity that is currently prevalent in China (more in the form of passive accumulation of inventories, which can be understood as a passive inventory increase). We tend to believe that the latter cause, namely overcapacity, may be the main factor in the surge in the share of inventories. This is worthy of high vigilance. 4. The assets of sovereign departments (or government departments in the broad sense, including the central government, local governments, state-owned non-financial enterprises, administrative institutions, central banks, and state-owned financial enterprises) are greater than liabilities, and the net assets are positive. This suggests that the likelihood of a sovereign debt crisis in China is low for a long time. From 2000 to 2011, China's sovereign assets and liabilities both expanded. On the sovereign asset side, the state-owned assets of non-financial enterprises and reserve assets grew the fastest. On the sovereign debtor side, government debt (central and local), state-owned enterprise debt, and contingent liabilities arising from the disposal of non-performing assets have grown rapidly. Since the growth rate of China's sovereign assets has been higher than that of sovereign liabilities in the past 12 years, the scale of China's sovereign net assets has been growing. Judging from the situation in 2011, China's net sovereign assets were 87 trillion yuan. However, considering that the state-owned assets of administrative institutions are very illiquid (because they have to perform government functions), and the liquidity of the right to use land and resource assets is also poor, and it is impossible to transfer all of them at once (in fact, the recent annual land transfer fee is only two or three trillion yuan), the narrow diameter of sovereign assets is 21.6 trillion yuan. In 2012, the combined debt of the central government and local governments was close to 28 trillion yuan, accounting for 53% of GDP that year. If the debts of non-financial enterprises, residential sectors, financial sectors and government departments are summed up, the debt scale of the whole society reaches 111.6 trillion yuan, accounting for 215% of GDP that year. This means that the leverage ratio of the whole society is already very high. In order to create a long-term stable environment for economic development, deleveraging is inevitable. By sector, by the end of 2012, the leverage ratio (corporate debt to GDP) of the corporate sector had reached 113%, exceeding the 90% threshold of OECD countries, which is worthy of high vigilance. These indicators are at the top of all statistical countries. This constitutes a prominent feature of China's debt structure. This situation is closely related to China's economic development mode and the characteristics of the financial system that are dominated by indirect financing. The outstanding loan balance of the household sector was 16.1 trillion yuan (including 10.4 trillion yuan in consumer loans and 5.7 trillion yuan in operating loans), accounting for 31% of GDP. The debt balance of the non-financial corporate sector is 72.12 trillion yuan, accounting for 139% of GDP. Considering that the debt of the non-financial corporate sector includes to a considerable extent the entity debt of local government financing vehicles, which have a government background, in order to prevent cross-duplication, it is necessary to exclude the scale of local government financing vehicle debt, resulting in a debt balance of 58.67 trillion yuan, accounting for 113% of GDP. Summing up the central government debt and local government debt, the total government debt at the end of 2012 was 27.7 trillion yuan, accounting for 53% of GDP. Taking only the balance of bonds issued by the financial sector as its debt, at the end of 2012, the balance of bonds of financial institutions totaled 9.13 trillion yuan, accounting for 18% of GDP. Summing up the above four sectors, the debt scale of China's economy as a whole is 111.6 trillion yuan, and the leverage ratio of the whole society is 215%. In terms of aggregate, China's total debt level is lower than that of most developed economies, but higher than that of other BRICS countries (excluding South Africa), which is a relatively moderate level and is still in a moderate and controllable stage. However, given the rapid rise in China's debt levels in recent years, we should be vigilant about this; If local debt or broader sovereign debt is taken into account, China's government (sovereign) debt will increase significantly and lead to a large increase in the total debt level. We must not sit idly by. 6. Since the beginning of the new century, the balance sheets of China's state and sovereign sectors have shown a rapid expansion trend. Among them, on the asset side, the rapid accumulation of external assets, infrastructure, and residential real estate assets constitutes the leading factor of asset expansion. This records the historical process of China's accelerated industrialization and urbanization under the export-oriented development strategy. On the debtor side, the scale of indebtedness of sovereign sectors such as governments at all levels and state-owned enterprises has expanded at a higher rate than that of the private sector. This highlights the institutional character of government dominance of economic activity. 7. The recent risks of the national balance sheet are mainly reflected in real estate credit, local debt, and bank non-performing loans, while medium and long-term risks are more concentrated in external assets, corporate debts, and social security arrears. Whatever the type of risk, it is closely related to the current development mode and economic structure. Therefore, the best way to deal with or resolve risks is to change the mode of development and adjust the economic structure to achieve healthy, efficient, high-quality and sustainable growth. 8. If the current endowment insurance system continues to be implemented, by 2023, there will be a funding gap for employee endowment insurance nationwide; By 2029, the accumulated balance will be depleted; By 2050, the cumulative gap in employee pensions will account for 91% of GDP in that year. In addition, by 2050, China's total pension expenditure (including employee and resident pension insurance) will account for 11.85% of GDP, which is roughly the same level as some high-welfare countries in Europe. We also analysed the impact of certain policy measures and pension system design on the financial sustainability of pension insurance in a variety of contexts. It is found that raising the retirement age and raising the basic pension age of residents can play a strong role and can greatly reduce the degree of pension gap. At the same time, improving the investment rate of pension insurance also helps to reduce the pension gap, but the effect is relatively small. Maintaining a high pension insurance replacement rate will significantly increase the potential debt level of pension insurance. We prefer measures to raise the retirement age and the basic pension age for residents, and at the same time, we advocate increasing the rate of return on investment and maintaining a high pension replacement rate. Of course, financing pension insurance through dividend accumulation of state-owned assets or the sale of state-owned assets, as well as by raising taxes, issuing bonds and providing financial subsidies to pension insurance, is also a viable option to solve or alleviate the pension gap. The Decision on Several Major Issues Concerning Comprehensively Deepening Reform adopted by the Third Plenary Session of the 18th Central Committee of the Communist Party of China clearly puts forward the strategic task of "accelerating the establishment of a unified national economic accounting system and compiling national and local balance sheets". Promoting the research and compilation of national balance sheets at the highest level of the country is rare in today's world. This fully demonstrates the determination and wisdom of the Chinese government to strive to "promote the modernization of the national governance system and governance capacity". As scholars of the highest social science research institution established by the state, we will respond to the call of the Third Plenum, continue to use our efforts to do a good job in the research and compilation of the national balance sheet, and contribute to the improvement and development of the socialist system with Chinese characteristics, and the modernization of the national governance system and governance capacity.（AI翻译）