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China’s rapidly growing local government debt problem has long been recognized by foreign observers as a risk, but inside China, only recently was this problem called out as alarming. Why has local government debt been allowed to grow with little direct intervention from central authorities? Based on a forthcoming paper, Oi will show how a “grand bargain” the central authorities entered into with the localities allowed Beijing to take the lion’s share of tax revenues after 1994, but also allowed localities to gain new resources and power as a quid pro quo. While the bargain provided an expedient and seemingly successful strategy that worked for more than a decade to fuel rapid local state-led growth, it had significant costs that are now becoming increasingly visible. Because land finance was the core means by which localities raised revenue, Oi also will help explain why the problems with property developers like Evergrande are so important to China’s future economy.