China Needs $3 Trillion Local Debt Solution, Top Economist Says
China needs to vastly step up its efforts to cleanse the balance sheets of the nation’s local governments, giving them the space needed to support consumer spending and strengthen the economy, according to one of the nation's most prominent economists. The central government should take on at least 20 trillion yuan ($2.8 trillion) worth of local sovereign debt, David Li Daokui said in an interview, proposing that the central government sell more bonds and use the proceeds to buy regional authorities' debt. This measure would help alleviate the burden of debt accumulated during Covid and China's previous property-and-infrastructure boom.
- The proposed solution highlights the interconnectedness of domestic consumption and economic stability, underscoring the importance of local governments in driving growth.
- How will a significant reduction in local government debt impact China's ability to respond to external shocks, such as ongoing trade tensions with major trading partners?