About This Report iii

Summary iv

Figures and Tables viii

CHAPTER 1 1

Introduction 1

CHAPTER 2 8

The Nature of the Problem 8

  Forms of Local Government Debt 9

  Classification of Local Government Bonds 10

  The Size of Local Government Debt in China 10

  The Legacy of Off-Budget Debt for Local Governments in China 14

  Policy Actions to Alleviate China’s Local Government Debt Problem 16

  The Distribution of Local Government Debt Across Chinese Provinces 20

  How Local Government Bond Issuance Is Coordinated Across China 21

  Disclosure of Local Government Debt 22

  Conclusion 23

CHAPTER 3 24

Local Government Responses 24

  China’s Public Finance System 24

  The Local Government Response to Budget Stress Wrought by High Debt Levels 29

  Conclusion 35

CHAPTER 4 37

Implications of China’s Local Government Debt for China and for the United States 37

  Consequences for China 38

  Adjustment Scenarios 41

  Implications for the United States 44

APPENDIX 47

Comparative Case Study: Shenyang and Guangzhou 47

Abbreviations 62

References 63

About the Authors 70