The development of internal debt into external debt andits issue under the guarantee of external debt is a major characteristic of government bonds issuedin Modern China .Thecause of internal and external debts is the costs and reparations of war . The modern capital imperialist aggression ,plunder and destruction resultedin a serious crisisin modernChina's economy ,leading to the financial difficulties of successive governments to the extreme .Internal and external debts were largely used to cover the huge fiscal deficit ,which concealed the deep-rooted contradictions in the operation of economy and resultedin a vicious cycleof debts .The transition of internal and external debts is a link in this vicious circle .