China Review News published an article on the financial risks China faces because of the magnitude of local governments’ debts and suggested ways to deal with the issue.
According to the article, local governments’ debts surpass that of the central government. Many of them face financial deficits, while the debt risk is much higher than the estimates. Reports indicate that, by the end of 2012, local governments’ debts reached 12 trillion yuan ($US1.96 trillion), which was 23.3 percent of GDP while the central government debt was 15 percent of GDP.
Several solutions were suggested on how to ease the local government debt crisis. First, local governments should be allowed more financial rights such as the right to receive increases in their share of tax revenues. Second, local governments must control their spending. Third, local governments should improve their financial capacity in developing basic infrastructure while assisting in the development of private businesses. Finally, local governments must be transparent in their financial spending and strengthen the system of checks and balances.
Source: China Review News, August 26, 2013