Bonds, bridges, and burdens: China’s local government debt in focus

18 October 2024 (10 min read)

KEY POINTS

China's decades-long period of investment-driven growth has undoubtedly fuelled impressive economic development; however, its debt-financed investments now weigh heavily on the slowing economy. This is particularly true for local governments, which bear the largest share of the debt

So-called ‘land finance’ has been a key mechanism behind China's economic miracle, transmitted via local governments and bolstered by the once-booming property market

Triggered by the property market's downturn, this once positive, self-reinforcing feedback loop has swung into reverse, in turn constraining local governments' fiscal capacities and putting pressure on the banking sector

Ultimately, only China’s central government can resolve these issues through immediate fiscal support and long-term reforms to its fiscal framework, ensuring a sustainable model for all levels of government

It is widely acknowledged that China’s “economic miracle” over the past three decades was largely driven by industrialisation – shifting from an agrarian economy to an industrialised one. The impressive GDP growth during this period was accompanied by rapid infrastructure development, a historic property market boom, and high demand for Chinese manufactured goods from Western economies. This was a capital-intensive process, especially for a country emerging from predominantly agricultural roots. Inevitably, debt levels surged over these decades as it invested in a new future but it suited China’s political landscape to see local governments shoulder much of this burden.

Download the full article

Download report (388.44 KB)

China reaction: GDP growth target likely in reach as Q3 figures beat marginally

by Yingrui Wang
18 October 2024 (3 min read)

China reaction: Prices soften, fiscal measures lack numbers

by Yingrui Wang
14 October 2024 (3 min read)

China reaction: Coordinated fiscal supports on the way

by Yingrui Wang
26 September 2024 (3 min read)

Disclaimer

The information on this website is intended for investors domiciled in Switzerland.

AXA Investment Managers Switzerland Ltd (AXA IM) is not liable for unauthorised use of the website.

This website is for advertising and informational purpose only. The published information and expression of opinions are provided for personal use only. The information, data, figures, opinions, statements, analyses, forecasts, simulations, concepts and other data provided by AXA IM in this document are based on our knowledge and experience at the time of preparation and are subject to change without notice.

AXA IM excludes any warranty (explicit or implicit) for the accuracy, completeness and up-to-dateness of the published information and expressions of opinion. In particular, AXA IM is not obliged to remove information that is no longer up to date or to expressly mark it a such. To the extent that the data contained in this document originates from third parties, AXA IM is not responsible for the accuracy, completeness, up-to-dateness and appropriateness of such data, even if only such data is used that is deemed to be reliable.

The information on the website of AXA IM does not constitute a decision aid for economic, legal, tax or other advisory questions, nor may investment or other decisions be made solely on the basis of this information. Before any investment decision is made, detailed advice should be obtained that is geared to the client's situation.

Past performance or returns are neither a guarantee nor an indicator of the future performance or investment returns. The value and return on an investment is not guaranteed. It can rise and fall and investors may even incur a total loss.

AXA Investment Managers Switzerland Ltd.