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Economy: How Will China’s Local Governments Manage Their Debts?

The high level of China’s local government debts has grown to a point of being alarming. Liu Kun, China’s Minister of Finance asked local governments to be responsible for their own debts and that the central government will not help, as “whose child do they hold?”

A Taiwanese media Up Media republished an article by Yan Cungou, a former Wen Wei Po editor, commenting on this policy:

Why was Liu Kun so cold-hearted? It is because the central government has depleted its money. It does not have the ability to cover local governments any more. It is just giving a warning up front.

In China, the local governments have accumulated 65 trillion yuan (US$9.6 trillion)in debt. Where can local governments find the money to pay off these debts? One possibility is to exploit private companies. This can result in the massive death of private companies. A second way is to exploit the people. However, people do not have much left after the three years of “zero-COVID” control and over-exploitation can lead to escalated conflicts between people and the authorities. The third option is to cut spending and lay off government staff members. However, the officials might be so hurt that they would stop working hard for the communist regime. In the end, the local government will run out of money and won’t even be able to pay for stability control efforts. Then there would be more social turmoil.

There might be several consequences for the central government’s “not holding local governments’ children.” First is that the central government will lose its authority over the local governments. Second is that local governments will focus on own interests and depart from the central government. Third is that the infighting among local governments (for resources) would intensify. Fourth is that people would protest and add to the pressure on the authorities.

Source: Up Media, January 17, 2023