China’s localities need debt relief, academic says, backing treasury bonds to ease burdens
- As China’s local governments suffer under the weight of debt, a former adviser to the central bank has called for treasury bonds to ease the burden
A former adviser to the People’s Bank of China has said the country’s central government should issue more treasury bonds to replace local debt, a call paired with entreaties for deeper reforms to address weak demand ahead of a crucial economic meeting this month.
Li, who was an adviser to China’s central bank between 2010 and 2012, has also advocated that the central government should shoulder some of the burden weighing down localities, arguing regional authorities have played a critical role in driving the country’s industrial growth.
“25 per cent of the purchasing power in China’s gross domestic product is reflected by local government spending,” Li said at a forum arranged by the state-backed Beijing News on Wednesday.
“The central government should issue treasury bonds on a large scale to replace local government debts,” Li said. “And the short-term debts issued by local governments to fund infrastructure should be extended to 20, 30, 40 and 50 years.”
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Li’s views have been echoed by other policy advisers, who have urged long-term fiscal policy reforms and changes in the role of government to make public debt in China more sustainable.
