2/9
This isn't mentioned in the article, but owners of manufacturing facilities have told me that in some poorer localities they've been "asked" to provide loans (and in some cases grants) to local governments. This of course raises insolvency and liquidity risks.
This isn't mentioned in the article, but owners of manufacturing facilities have told me that in some poorer localities they've been "asked" to provide loans (and in some cases grants) to local governments. This of course raises insolvency and liquidity risks.
3/9
The article cites experts as saying "there is no easy way to increase local government income except through economic recovery", but notes that by cutting back on spending, these governments are actually making economic recovery that much more difficult.
The article cites experts as saying "there is no easy way to increase local government income except through economic recovery", but notes that by cutting back on spending, these governments are actually making economic recovery that much more difficult.
4/9
That's a very important point. I've often referred to the pro-cyclicality of a growth model in which surging property prices and economic activity allow local governments to increase spending to such an extent that their spending becomes one of the main causes of surging...
That's a very important point. I've often referred to the pro-cyclicality of a growth model in which surging property prices and economic activity allow local governments to increase spending to such an extent that their spending becomes one of the main causes of surging...
5/9
property prices and economic activity. The problem of course is that when the process reverses, as it eventually must, it is even more intensely pro-cyclical. As local governments collectively cut back on spending, this hurts the economy and reduces their income further.
property prices and economic activity. The problem of course is that when the process reverses, as it eventually must, it is even more intensely pro-cyclical. As local governments collectively cut back on spending, this hurts the economy and reduces their income further.
6/9
This is always a risk for economies that are heavily reliant on a few major sectors for much of their growth, for example economies that are heavily dependent on producing a particular commodity.
This is always a risk for economies that are heavily reliant on a few major sectors for much of their growth, for example economies that are heavily dependent on producing a particular commodity.
7/9
In China, property, local-government spending and infrastructure are highly correlated, and collectively have probably accounted for half of economic activity. This makes overall growth highly dependent on their behavior, and their behavior highly dependent on overall growth.
In China, property, local-government spending and infrastructure are highly correlated, and collectively have probably accounted for half of economic activity. This makes overall growth highly dependent on their behavior, and their behavior highly dependent on overall growth.
8/9
What is more, this pro-cyclicality is so unevenly distributed between the richer, less-indebted provinces and all the rest, that the flow of educated workers and businesses from the latter to the former risks exacerbating already-deep differences between the provinces.
What is more, this pro-cyclicality is so unevenly distributed between the richer, less-indebted provinces and all the rest, that the flow of educated workers and businesses from the latter to the former risks exacerbating already-deep differences between the provinces.
9/9
I think the only way to reverse this process requires a substantial commitment from the central government, so that eventually Beijing assumes the liabilities of local governments, but so far they have been hesitant to take on the debt needed to do so.
I think the only way to reverse this process requires a substantial commitment from the central government, so that eventually Beijing assumes the liabilities of local governments, but so far they have been hesitant to take on the debt needed to do so.
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