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In an era when public debt is soaring worldwide, the debt risks in China, the world's second largest economy, are a crucial issue to be examined. This study uses both the conventional approach and the balance sheet approach to measure governmental debt in China. Our updated assessment suggests that it is unlikely that there will be a debt crisis in the near future although governmental debts have piled up to a historically high level. However, China faces daunting challenges in ensuring fiscal sustainability in the coming decades. To overcome these challenges, it is urgent for China to significantly restructure its newly developed budgeting system in order to improve its capacity to manage fiscal risks.

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