Local Government Debt in China Exceeds 40 Trillion Yuan as Epidemic Containment Policy Takes Toll
After three years of implementing the epidemic containment policy, the scale of local government debt in China has increased rapidly. Recently released official data showed that local government debt balance exceeded the 40 trillion yuan mark for the first time.
According to the Ministry of Finance of the Communist Party of China, the national local government debt balance was 40,101.1 billion yuan as of the end of October 2023. This marks a significant increase from previous years, with the debt balance exceeding 10 trillion yuan in 2013, 20 trillion yuan in 2019, and 30 trillion yuan in 2021.
China Business News reported that the increase in local debt is a result of the intensified active fiscal policies put in place to counter the downward pressure on China’s economy. In addition, the weak growth of fiscal revenue in recent years, especially under the downturn of the property market, has led to a rapid growth in the local debt ratio.
To replace implicit debts that the government has the responsibility to repay, Chinese local governments intensively issued over 1 trillion yuan in special refinancing bonds beginning in October this year. This move, aimed at hedging against the downward pressure on the economy, contributed to the rapid increase in the local government debt balance.
The International Monetary Fund (IMF) estimated that the total debt of the CCP’s local financing platforms has skyrocketed, from 57 trillion last year to 66 trillion yuan, accounting for at least half of China’s total debt.
Furthermore, the Chinese Communist Party’s crackdown on real estate developers and the severe lockdown policies implemented during the epidemic have strained local government fiscal revenues. As a result, the CCP has asked governments at all levels to “tighten their belts” and prepare for a “tight life” for the foreseeable future.
In response to the financial burden, many places in China have begun large-scale liquidation of non-staff personnel in government agencies and institutions. Some Chinese scholars believe that after clearing out non-staff personnel, it is possible to further streamline the staff to reduce the financial burden.
As China grapples with the economic impact of the epidemic containment policy, the significant increase in local government debt raises concerns about the country’s economic stability and the potential risks associated with the rising debt.