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Lang Run Column Elucidates Subnational Debt

Apr 08-2024   



Government debt is a policy and academic topic of universal significance. Research and discussions on government debt are common in the academic circle of developed and developing countries alike. In the development history of China’s government debt, local government financing vehicle and hidden debt occupy a prominent position and draw the attention of a great number of Chinese and foreign researchers.

 

This year marks the 30th anniversary of China’s tax-sharing reform, initiated in 1994, as well as the 30th anniversary of the establishment of the National School of Development (NSD) and China Center for Economic Research (CCER) at Peking University. It offers a historical moment to reflect on the fiscal and taxational relations between the central government and local governments, and to ponder over the construction of national institutions. Therefore, through Lang Run Column, a series of commentaries based on academic papers will analyze thorny issues and present fresh thoughts with regard to the prevention and defusing of the risk of local government debt (‘subnational debt’) and the construction of a government debt management mechanism in keeping with high-quality development. The commentaries will adopt various angles, including local government debt and companies’ payables and receivables, market discipline, judicial reform, fiscal and financial policy, and green and low-carbon transition.

 

The Central Economic Working Conference, held in December 2023, set forth the plan to undertake a new round of fiscal and taxational reform and consolidate financial system reform. Major messages included using a whole-package solution to comprehensively clean up local governments’ debt stock, instituting a long-term mechanism for managing local government debt, combining market discipline and administrative measures to smash expectation for hidden collateral, and turning debt cleanup into an opportunity to facilitate the economy’s transition to a low-carbon, green and digital one. All these might offer an important lever for sorting out the fiscal and taxational relations between the central government and local governments, as well as effectively managing the risk of local government debt.

Lang Run Column Elucidates Subnational Debt

Apr 08-2024   



Government debt is a policy and academic topic of universal significance. Research and discussions on government debt are common in the academic circle of developed and developing countries alike. In the development history of China’s government debt, local government financing vehicle and hidden debt occupy a prominent position and draw the attention of a great number of Chinese and foreign researchers.

 

This year marks the 30th anniversary of China’s tax-sharing reform, initiated in 1994, as well as the 30th anniversary of the establishment of the National School of Development (NSD) and China Center for Economic Research (CCER) at Peking University. It offers a historical moment to reflect on the fiscal and taxational relations between the central government and local governments, and to ponder over the construction of national institutions. Therefore, through Lang Run Column, a series of commentaries based on academic papers will analyze thorny issues and present fresh thoughts with regard to the prevention and defusing of the risk of local government debt (‘subnational debt’) and the construction of a government debt management mechanism in keeping with high-quality development. The commentaries will adopt various angles, including local government debt and companies’ payables and receivables, market discipline, judicial reform, fiscal and financial policy, and green and low-carbon transition.

 

The Central Economic Working Conference, held in December 2023, set forth the plan to undertake a new round of fiscal and taxational reform and consolidate financial system reform. Major messages included using a whole-package solution to comprehensively clean up local governments’ debt stock, instituting a long-term mechanism for managing local government debt, combining market discipline and administrative measures to smash expectation for hidden collateral, and turning debt cleanup into an opportunity to facilitate the economy’s transition to a low-carbon, green and digital one. All these might offer an important lever for sorting out the fiscal and taxational relations between the central government and local governments, as well as effectively managing the risk of local government debt.