China's trillion-dollar dilemma of local government 'hidden debt'

Drastic steps may be needed to solve problem driven by COVID, property crisis

20230920 China debt

Local authorities have accumulated trillions of dollars of off-the-books liabilities, which may require bold steps by the central government to rectify. © Reuters

ZHANG YUKUN, XIA YINING and DING FENG, Caixin

China's financial system remains plagued by trillions of dollars in local governments' hidden debt, as they have long turned to off-the-books borrowing to plug funding shortfalls, which have grown significantly due to the pandemic and property crisis.

To solve the problem, policymakers may need to take drastic measures, such as allowing local governments to sell bad debt to asset managers and giving them a bigger slice of tax revenue, financial scholars said.

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