Two decades of pursuing vanity projects has left many local governments in China in deep debt quagmire, and their status as the “largest local debt defaulters” not only spills over to private enterprises, but also hurts them further. There is. Scholars have warned that this is the root of a governance crisis.
Feng Chuan, an associate professor at the School of Political Science and Public Administration at Wuhan University, said public trust and business trust were in jeopardy after officials, residents, local government financing institutions (LGFVs), contractors and banks were found to have been involved in the fraud. He called for further efforts to restore trust. Debt impasse.
In an article published last month on news portal NetEase, he said: “The overdrawing of trust is occurring in a systematic manner, tearing apart the fundamental trust system that maintains the order of social governance.”
Investigation begins after arrest of businessman seeking delinquency from government
Investigation begins after arrest of businessman seeking delinquency from government
Local government debt rose 14.3% year-on-year to 41.4 trillion yuan ($5.7 trillion) by the end of February, according to data obtained from the Ministry of Finance and reported by the state-run Xinhua News Agency on Tuesday. So-called hidden debts including LGFV are not included.
LGFVs flourished after the 2008 global financial crisis as a way to finance China's infrastructure construction boom, but they yielded little profit. The debt raised is taken off municipal balance sheets, but comes with an implicit government guarantee of repayment.
The Chinese government has already taken steps to ease the pressure by suspending infrastructure projects in some of the most indebted provinces and providing funding through remittance payment channels and special bonds.
However, Feng added that local government debt has instilled deep mistrust among private entrepreneurs and local residents, and significant policy changes are needed to address the issue.
I can't afford to fall behind
In one county in southern China's Guizhou province, sales of local land, often used as collateral to obtain bank loans, have fallen to 100 million yuan a year, enough to cover annual interest payments on an 8 billion yuan debt. Mr. Feng realized that it was becoming difficult. .
When asked why local governments are so obsessed with building plazas and flashy buildings, one local official said that pressure to achieve political results, competition to ensure gross domestic product (GDP) growth, I answered that it was the cause.
In Feng's article, an anonymous Guizhou county official was quoted as saying, “We cannot afford to fall behind.”
“County leaders focus on their own accomplishments during their term and do not consider the long-term impact.”
Local officials, under pressure to meet growth targets, are often seen as motivated by economic growth and inflating the numbers in order to advance.
Guizhou faces debt settlement after years of unchecked infrastructure spending
Guizhou faces debt settlement after years of unchecked infrastructure spending
While some counties have “inflated” state-owned assets to secure loans from banks, resulting in a spike in non-performing loans, LGFV has the assets and cash needed to meet banks' stringent mortgage screening standards. There is a lack of flow, Fenn added.
And despite the Chinese government's repeated emphasis on debt management, Feng found that many heavily indebted villages continue to apply for government funding for further construction projects.
Many of the projects were launched in support of Rural Revitalization, President Xi Jinping's follow-up strategy after declaring victory over extreme poverty in 2020.
However, the central government is wary of excessive local borrowing to create “model villages” in the form of a campaign that encourages authorities to mobilize extraordinary resources under strong political patronage to implement the policy. There is a need, Feng said.
He also warned that local authorities were being widely embroiled in a “city-building campaign” in which they invested far beyond their financial capacity to achieve “unrealistic political goals”.
