"Chinese Government Must Issue National Bonds to Solve Local Debt Problems"

Remarks by Former Central Bank Official Ahead of Triple Meeting

There has been a claim that the Chinese central government needs to issue more national bonds to resolve the local government debt problem. This statement has drawn even more attention as it was made ahead of a meeting where China's economic policy direction will be intensively discussed.

According to the Hong Kong South China Morning Post (SCMP) on the 8th, Li Daokui, a professor in the Department of Economics at Tsinghua University and former member of the People's Bank of China Monetary Policy Committee, said at a forum hosted by a Chinese state-run media outlet recently, "In-depth reforms are necessary to improve domestic demand."

He emphasized, "25% of China's Gross Domestic Product (GDP) comes from local government expenditures, but economic growth has slowed due to the current heavy debt burden," adding, "The central government should take on some of that debt so that local governments can serve as drivers of national industrial growth." Furthermore, he argued, "The central government must issue large-scale national bonds to replace local government debt," and "short-term debt issued to support infrastructure funding should be extended to 20 to 50 years."

This statement came ahead of the 20th Central Committee of the Chinese Communist Party's 3rd Plenary Session (the Third Plenum), scheduled for the 15th to 18th. The Third Plenum is a plenary meeting where economic development policies and reform plans are intensively discussed, providing insight into the economic policy direction of Xi Jinping's third term.

The local government debt mentioned by Professor Li is one of the risks identified by multiple scholars as a potential trigger for China's economy. As the real estate market rapidly cools, land sales?a major source of revenue?have declined, and astronomical costs incurred over years of zero-COVID prevention measures have plunged local governments into a debt quagmire.

Debt from Local Government Financing Vehicles (LGFVs) for local government funding is estimated to have reached between 30 trillion and 60 trillion yuan (approximately 5,686 trillion to 11,373 trillion won) as of the end of last year, which is equivalent to half of China's GDP. According to a recent report released by China Guotai Asset Management, LGFV debt was only 1.45 trillion yuan in 2009.

Professor Li also expressed concerns about deflation and lack of consumption, pointing out, "Without reforms, China's growth rate will decline over the next few years." He explained, "Japan was unable to stimulate demand for a long time, resulting in damage to corporate profits and investments." He added, "I am looking forward to the upcoming Third Plenum," emphasizing, "It will deepen reforms to resolve consumer demand issues and ensure future growth."

This content was produced with the assistance of AI translation services.