China's Local Government Debt

Monday, March 20, 2023 8:30 pm - 9:30 pm



The origin of China's local government debt dates back to the 2009 four-trillion RMB stimulus plan. To circumvent the borrowing restrictions imposed by the 1994 tax sharing reform, in 2009 local governments financed infrastructure investment by bank loans via local government financing vehicles (LGFVs). This one-time massive credit expansion has had long-lasting and unintended consequence, including serving as a catalyst for the development of shadow banking and corporate bond market several years later. To rein in the ever-growing local government debt problem, Beijing introduced municipal bonds during the 2014 fiscal reform. Municipal bonds are directly issued by the local governments, taking two forms "special-purpose" and "general-purpose".  During the pandemic, the local government debt grew significantly, while the fiscal revenue plummeted, exacerbating the debt sustainability problem.

This lecture features Zhiguo He, Fuji Bank and Heller Professor of Finance at the University of Chicago, Booth School of Business. Professor He will revisit the financing of local government in China and its recent development, highlighting the interaction between government intervention and market forces.

Speaker: Zhiguo He, Fuji Bank and Heller Professor of Finance, University of Chicago, Booth School of Business; Director of Becker Friedman Institute for Economics in China, University of Chicago

Moderator: Zening Ge, Executive Director, The University of Chicago Center in Beijing

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