Commentary
China has been relying on heavy borrowing and spending by local governments to fuel growth for years. However, the resulting debt accumulation now poses a significant challenge to China’s future development.
Following the conclusion of the delayed Third Plenum session, there is uncertainty surrounding the specifics of the Chinese regime’s five-year plan. Despite acknowledging the need to address the property crisis, little new information was provided during the meeting. This lack of clarity extends to the proposed solutions for local government debt, which are notably lacking in detail. Without a comprehensive strategy, the burden of local government debt could hinder Chinese growth, even if the property crisis is resolved.
These LGFVs have been instrumental in funding massive infrastructure projects in China, such as apartment complexes, city centers, highways, and rail systems. While initially contributing to economic growth and showcasing progress, the diminishing returns on these investments have created a financial strain that threatens the sustainability of these practices.
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If left unaddressed, the LGFV crisis could have more severe consequences than the ongoing property crisis. Even if a plan is put in place, it may not be sufficient to resolve the issue. The slow and tentative response from Beijing to the property crisis suggests that it will take years to rectify these challenges, during which China may struggle to regain its former growth trajectory, essential for meeting Beijing’s ambitious goals.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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