Solving China’s Swelling Local Debt Problem

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In The Media

Solving China’s Swelling Local Debt Problem

Addressing China’s local debt problem requires fiscal reforms to increase local revenues. Sustaining growth also requires expanding the role of private firms and a more efficient urbanization process.

By Yukon Huang

Published on Dec 31, 2013

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.

Economy East Asia China

Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.

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