Fiscal Policy and the Government Balance Sheet in China
Waikei Lam and
Marialuz Moreno Badia
No 2023/154, IMF Working Papers from International Monetary Fund
In this paper, we present the most comprehensive estimates of China’s government balance sheet to date. Based on these estimates, we show how major shifts in fiscal policy over the last two decades have shaped the health of the public sector prior to the Covid-19 pandemic. We find that, at US$12.5 trillion, China has the largest stock of financial assets in the world. However, its net financial worth as a percent of GDP—though still higher than the large majority of countries—has declined over the last decade. This trend can be traced back to the turn of the century when China undertook a major restructuring of its state-owned enterprises but left important shortcomings in the intergovernmental fiscal system unaddressed. Compounding these risks, reform momentum stalled in the aftermath of the global financial crisis leading to high leverage and falling profitability among state-owned enterprises.
Keywords: Balance Sheet; China; Debt; Deficit; Local government; State-owned Enterprises; Infrastructure; government balance sheet; balance sheet estimation; estimation methodology; Financial statements; Public enterprises; Global; cross holdings; SOE reform; public finance; Public sector (search for similar items in EconPapers)
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