A Study of China's Local Government Debt with Regional and Provincial Characteristics

摘要

China's Local Government Debt (LGD) grew rapidly after 2009. By using the National Audit Reports and self-collected data from provincial governments, we provide a decomposition of China's LGD to the regional and provincial levels. We document regional characteristics regarding various aspects of LGD. When exploring provincial characteristics of LGD, we relate the causes of LGD to the mismatch of revenues and responsibilities in local government. By analyzing the structure of Local Government Fiscal Resources (LGFRs), we point out that LGD poses an essential challenge to China's economic health due to the lack of fiscal transparency. We concisely analyze the expansion of Local Government Funding Platforms (LGFPs) and the issuance of Urban Development Investment Bonds (UDIBs). Finally, we propose several directions for a better management of LGD in both the short and long run, emphasizing adjustments of LGD term structures, improvement of financing channels, and reforms of fiscal systems to bring in more transparency and accountability. We suggest that the policies designed to resolve the LGD problem need to take into consideration the varying characteristics of LGD of different regions and provinces.