China fs Fiscal Position and Policy: Current Status of Local Government Debt Problems and Challenges

Jiro Naito
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Jiro Naito: Vice President, Daito Bunka University/Professor, Faculty of Economics

Public Policy Review, 2015, vol. 11, issue 1, 67-92

Abstract: As for China fs fiscal position, the central government fs fiscal position is relatively sound, while local governments f fiscal position is threatened by growing risks, mainly the expansion of debts and bad loans. This is clear from the results of the audit by the National Audit Office of the People fs Republic of China (which is the Chinese equivalent of the Board of Audit of Japan). Given that China still maintains a high economic growth rate of around 7.5%, holds a huge amount of foreign currency reserves and is recording a large amount of current account surplus, government debts are unlikely to cause major disruptions to the Chinese economy as a whole in the short term. However, if fiscal problems arise in some regions and the impact spills over into other parts of the country, or if the impact stalls reform and delays resolution of problems, a serious crisis will occur sooner or later. To prevent such a situation, China needs to overcome a pile of challenges, including tax and fiscal system reforms, enhancement of the fiscal transfer system, the development of laws and regulations related to local fiscal policy and appropriate fiscal management based thereon, and appropriate allocation of administrative powers, revenues and responsibilities between the central and local governments. These are challenges that can in no way be skirted if the current government is to achieve its goal of carrying out economic structural adjustments and reforming the functions of government, so actions to overcome them must not be postponed. Amid the growing signs of a slowdown of the economy, fiscal policy has an increasingly important role to play, and the time left for reform is limited.

Keywords: local government debts; intergovernmental fiscal relations; administrative and fiscal policies (search for similar items in EconPapers)
JEL-codes: H6 H7 O2 (search for similar items in EconPapers)
Date: 2015
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