Source: China View

Carnegie’s Yukon Huang appeared on China View to discuss China’s local government debt challenges. He argued that there are two issues which could prevent China from growing at 7 percent through 2020. The first is local government debt, which exploded as a result of the government stimulus following the global financial crisis. However, the true issue with local government debt is that local governments do not receive enough tax revenue to cover their expenses. Therefore, fiscal reform is the single most important step toward addressing the local government debt problem, and the Third Plenum reform proposals seem to have recognized this, he said. The second issue, Huang continued, is that China can no longer afford to simply rely on local government spending for support and must therefore boost productivity. The two main ways the government can boost productivity is to expand the role of private enterprise in the economy, because private firms are twice as productive as state-owned enterprises, and to improve the efficiency of the urbanization process by allowing more people to migrate to the more productive big cities. Improving the efficiency of the urbanization process will also improve equity, expand citizens freedoms, and will reduce China's trade surplus and tensions with the West.