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Evaluation on China’s Financial Security: Current Situation and Policy Options (No.195, 2021)


By Zhang Shiguo, Zhang Jinqing, Jiang Jiajun, Zhang Jianyu & Nie Yuqing, Management World journal; Sun Dazhao, Financial Research Center, Fudan University

Research Report, No.195, 2021 (Total 6260) 2021-7-12

Abstract: The insufficient liquidity of economic entities is a major feature of China’s financial security emergency risks in recent years. In light of the MERTON-KMV model, this paper constructs a financial security evaluation framework based on government’s departmental liquidity balance sheets, and evaluated China’s financial security. The study finds out the following results. 1. China’s current overall financial security index is in the historical 54% quantile, higher than the historical average, and the overall situation is controllable. 2. The COVID-19 pandemic has exerted an obvious impact on China’s financial security across the board, especially the financial security level of government departments has been lowered significantly since the breakout of the pandemic. In a bid to correctly evaluate China’s financial security level and improve the capacity to withstand the external shocks, we need to flesh out the national economic statistics mechanism, formulate and monitor the liquidity balance sheets of each government’s department, and make use of the financial security measurement results of each department to focus on major departments with problems and resolve key issues.

Keywords: financial security, liquidity balance sheet, COVID-19 pandemic, debt issues