Economics: China’s debt brake

Local governments are nearing their debt-carrying capacities

Most regional governments exceed the limits on their on-balance sheet debt ratios that could trigger a fiscal restructuring program – China’s version of a “debt brake”. And some of their off-balance sheet financing platforms are losing market access.

Austerity with Chinese characteristics

The austerity measures imposed on Hegang show what happens when cities exceed their official debt limits. While Guizhou’s efforts to restructure its “hidden” debts show what’s in store for those that can’t service their off-balance sheet liabilities. 

Slower GDP growth seems inevitable, a financial crisis does not

As the “land finance” model of economic development breaks down, local governments are being forced to retrench. The Ministry of Finance seems disinclined to offset this fiscal tightening. Growth will suffer, but we doubt it will spark a systemic financial crisis.