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China’s Local Government Debts Result from the Government’s System

On September 24, 2013, Gao Peiyong, Director of Institute of Finance and Trade Economics of the Chinese Academy of Social Sciences (CASS) spoke at an economic forum in Beijing. At the forum, Gao stated that the ultimate risk that occurs as a result of local governments’ debts is not due to the size of the debts themselves, but to the nature of the government system.  

Gao indicated that it is because the local governments lack awareness of the standard of “living within their means” and recognizing an obligation to pay off their debts. “Only by improving local governments’ financial systems can local debt risks truly be resolved.” “The greater problem is that almost all of the local governments give little thought to and have no consideration for how to repay their debts.” Gao said that if a person never wants to pay back his debts or never wants to take his obligations seriously, that person’s actions result in the greatest risk, which is the system’s problem and its most fundamental problem. 

According to Gao, the reason why local governments are such debtors is directly linked to Communist China’s financial system. In the eyes of the central government, local governments are children that need to be controlled. They do not have a separate, sound personality for dealing with self-finance

Source: Xinhua, September 24, 2013