Gerard Burg, Senior Economist at NAB, suggests that China’s response to growing trade tensions with the United States has been multi-faceted.
Key Quotes
“China’s central government has proposed loosening policy restrictions on infrastructure investment – developments that are typically managed and funded at the local government level. The latter could be problematic, as China’s local government debt could be much larger than widely thought – an echo of earlier fears from early 2014.”
“In late March 2018, the Chinese Academy of Social Sciences estimated that the total off-balance sheet liabilities of LGFVs was in the order of RMB 30 trillion, while a further RMB 10 trillion could be hidden within so-called public-private partnerships.”
“Combining these estimates of off-balance sheet debts to the officially reported sums suggests that China’s local government debt could be in the range of 55% to 66% of GDP in September 2018. With another 16% of GDP in central government debt, this suggests that China’s total government debt is well above the 60% benchmark that is seen as a prudent limit in advanced economies.”
“The greater scale of local government debt than is widely acknowledged in official figures highlights the risks associated with infrastructure led stimulus to China’s economy. It also highlights the need to continue reforms to the broader economy – where progress has been disappointing.”
“A key reform that would boost the sustainability of local government revenues would be the implementation of property taxes – proposed for over a decade, but repeatedly delayed. A nationwide tax had been scheduled for introduction in 2019, however this proposal has been delayed with an uncertain start date.”
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