The Logic (or Illogic) of China's Local Government Debts Out of Control - Law, Governance or Other Perspectives

Abstract

Local government debts in China come into the global spotlight due to its massive volume. This article is primarily concerned with the deep causes of and potential solutions to local government debts in China. An attempt is made to understand the causes of local government debts through various dynamic elements of China’s public and fiscal finance, including revenue collection, allocation of government responsibility, fiscal expenditure and fiscal transfer within the central and local governments. Local governments’ spending patterns reveal a deep and fundamental flaw in the overall governance structure, which necessitates a more comprehensive reform tackling the root problems underlying the local government debt crisis in China.