APARC Research - Fiscal Politics and Central Local Relations in China

Ancient and modern buildings in Beijing

Fiscal Politics and Central-Local Relations in China

China’s local government debt problem and the future of its economic growth

A question of balance

The fate of the Chinese development model largely depends on the prospects of striking the right balance between central control and local discretion. To gain insights into the current dynamics of central-local relations this research project examines the challenges Beijing faces in trying to solve the rapidly rising local government debt problem.

Research Focus

Growth and debt have been conjoined twins in China's development since the 1980s. Localities relied on creative strategies to get around formal constraints or took advantage of loopholes to meet quotas and growth targets, opening the door to massive local government debt. In contrast to much of the last 40 years of China’s unprecedented growth story, Xi Jinping has swung the pendulum decisively toward centralization and tightened control over the localities. He has ratcheted up the anti-corruption campaign and imposed greater top-down regulation.

Why is there so much local government debt when the law prohibits localities from borrowing and budget deficits? What is the solution to the debt problem if growth and debt are entwined in China’s developmental model? Which ones of Xi's policies to reign in local government debt are likely to be effective and which may cause unintended consequences that might dampen the incentive of local state agents and put the entire system at risk by further slowing economic growth? Has China reached the limits of economic growth possible without deep systemic reforms?

The “Fiscal Politics and Central-Local Relations in China” project, led by Jean Oi, examines the consequences of Xi’s centralization of power on China’s local-led growth model by probing the case of the explosive growth of local government debt. Based on recent memoirs by key Chinese leaders, government documents, financial sites, and interviews, it shines new light on the fiscal relationship between Beijing and the localities in the wake of the 1994 fiscal reforms.

Beyond this focus, related research explores more broadly China’s fiscal politics and central-local relations, which has long been a major theme in Oi’s work. It includes fieldwork on the organization of rural communities and the provision of public goods, especially affordable housing; studies of the complexities and constraints as China seeks rapid urbanization; and work on the politics of corporate restructuring, particularly the institutional constraints of state actors.

Lead Researcher

fsi_bio

Jean C. Oi

Shorenstein APARC China Program Director
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fsi_bio

Jean C. Oi

Shorenstein APARC China Program Director
Senior Fellow, Freeman Spogli Institute for International Studies and Professor of Political Science

Publications

 

Firms as Revenue Safety Nets: Political Connections and Returns to the Chinese State
with Chaohua Han and Xiaojun Li, The China Quarterly, May 2022
See also Special Connections for Common Coffers: How Patron-Client Relationships Help China Fulfill Its Revenue Imperative, APARC website, June 2022

China’s Local Government Debt: The Grand Bargain
with Adam Y. Liu and Yi Zhang, The China Journal, Vol. 87, January 2022
See also Bargaining Behind Closed Doors: Why China’s Local Government Debt Is Not a Local Problem, APARC website

Future of Central-Local Relations
in Fingar and Oi, eds., Fateful Decisions: Choices that will Shape China's Future, Stanford University Press, 2020

China’s Challenges: Now it Gets Much Harder
with Thomas Finger, The Washington Quarterly, Vol. 43, Spring 2020.

Reflections on Forty Years of Rural Reform
in Jacques deLisle and Avery Goldstein, eds., To Get Rich is Glorious: Challenges Facing China’s Economic Reform and Opening at Forty, Brookings Institution Press, 2019

Unpacking the Patterns of Corporate Restructuring during China's SOE Reform
with Xiaojun Li, Economic and Political Studies, Vol. 6, No. 2, 2018

Institutional Challenges in Providing Affordable Housing in the People’s Republic of China
with Niny Khor, in Challenges in the Process of China’s Urbanization, edited with Karen Eggleston and Yiming Wang, Shorenstein APARC, 2017

Rural Development
in David S. Goodman, ed., Handbook of the Politics of China, Edward Elgar Publishing, 2015

Development Strategies and Poverty Reduction in China
in Yusuf Bangura, ed., Developmental Pathways to Poverty Reduction, Palgrave Macmillan, 2015