Chinese Leaders Promise “Basket of Measures” to Address Local Debt Crisis

Chinese leaders have promised a “basket of measures” to address the issue of local government debt, indicating that Beijing may be prepared to step in and assist. The extent of the government’s involvement and the specific measures to be implemented are closely watched by economists. Possible measures include special bond issuance, debt swaps, loan rollovers, and using the central budget. China’s local governments are crucial to the country’s economy, but excessive infrastructure investments, declining returns from land sales, and the impact of COVID-19 have resulted in a significant increase in debt, posing a risk to the overall economy. The Chinese leadership’s commitment to addressing the issue represents a shift in approach, as Beijing had previously demanded that local administrations resolve the problem themselves. The success of Beijing’s solution will depend on the scope and scale of the measures implemented. However, finding a long-term solution to the municipal debt crisis will require profound changes to China’s economic model.