Controlling Disorderly Expansion of Local Debts through Compilation of Macro Balance Sheet
Aug 18-2024
Resolution of the Central Committee of the Communist Party of China on Further Deepening Reform Comprehensively to Advance Chinese Modernization put forward the idea of exploring the introduction of national macro balance sheet management and optimally adjusting the mix of existing resources. In a recent media interview, Prof. Yao Yang said the macro balance sheet can provide the government with a comprehensive and clear view of the state of the national economy, and assist it to better grasp economic performance and set scientific and rational economic policy; at the same time, the macro balance sheet is the only means for reinforcing local debt management and reining in the haphazard expansion of local debts. Prof. Yao is Peking University Boya Distinguished Professor, NSD Professor of Economics, and Director of China Center for Economic Research.
Many methods have been tried to control local debts but the results have been limited, said Prof. Yao. One of such measures is conducting auditing upon the departure of an official from a post. Prof. Yao said that to tackle the issue of local debts, the supervision and guidance of local governments’ borrowing behavior should be strengthened, including regulating borrowing procedures and usages. Simultaneously, disclosure of local debts should be sped up by compiling and publicizing local balance sheet and allowing all sectors of society to jointly monitor local debt management, thereby prodding local governments to regulate debt-incurring behavior.
Prof. Yao said that one of the most important achievements of the Third Plenary Session of the 20th Central Committee of the Communist Party of China was reiterating the concept of “High-Standard Socialist Market Economy”. In its essence, it is about a stable socialist economic system and market economic system that solidifies what has been done right over the last forty plus years and lays institutional groundworks for the great rejuvenation of the Chinese nation as well as China’s development in the next several decades and even up to a century.
Prof. Yao pointed out that the last round of globalization was dominated by the US, but it has been demonstrated in the new era that institutionally China will not converge with the US. China will adhere to the socialist system and hold fast to its own cultural traditions, said Prof. Yao, adding that in effect high-standard socialist market economy forms such a goal – the ultimate goal.
Commenting on current economic situations, Prof. Yao said that housing and local government outlays are two crucial ways for boosting consumption. Given the inadequate policy support for the real estate market at the moment, he proposed establishing a housing reserve bank. More specifically, he called for issuing 3 to 5 trillion yuan of long-term bonds and offering the proceeds to local governments as loans at low interest rates, which then use the funds to purchase houses as reserves and build affordable housing and low-rent housing.
Currently, local governments face the common issue of tight fiscal conditions, which not only affects the provision of public services but also aggravates ‘triangle debts’ among enterprises. These in turn dampen employment and residential consumption. Prof. Yao advised issuing 4 trillion yuan of special treasury bonds to help local governments pay off their arrears to enterprises, which will stimulate the consumption market and spur economic circulation.
