Author: XU Qiyuan  SHENG Zhongming

Recently，China’s local government debt has received widespread attention，and the discussion on local government debt tends to lead to the assessment of the government’s fiscal condition. Over the past years，the government’s capacity to increase revenue has been curbed due to tax-and-fee-cut policy，the economic downturn，and the slide in the real estate market. In this context，there are increasing concerns regarding fiscal deficits and the risks associated with debt.

Is there any solvency risk of local government debt? Is it necessary for China to raise debt to promote infrastructure development? What were the problems with the previous build-up of local government debt? What are the implications of the radical change in the land market? These concerns should not be evaluated in isolation but must be systematically examined and tackled in accordance with China's distinct circumstances and current level of progress.

The Risks of Local Government Debt Lie in Liquidity Instead of Solvency