Local Government Debt Management Solutions

Liu Yuhui
Financial Key Lab at the Institute of Finance and Banking, Chinese Academy of Social Sciences, Beijing, China

Abstract:  Two rounds of leveraging-up have led to a high debt ratio in the Chinese economy, triggered liquidity mismatch and increased systemic financial risks. The key causes of local government liabilities are soft budget constraints and non-market-based factor allocation. Currently, the risks of local government liabilities are generally controllable.This paper concludes that the long-term solution to managing local government liabilities is to enhance budget constraint and institutional assurance and proposes countermeasures in the reform of urban construction investment and financing mechanisms.

Keywords: local government liabilities, financial risk, liquidity mismatch, budget constraint

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