How Did Local Debt Burden Impact Governors’ Financing Decisions in Meeting Development Goals?

Abstract

Since the commencement of the New Budget Law in 2015, China provincial governments was given the legal rights to issue Local Government Bonds, which has played a significant role in revealing local indebtedness that was built up over the years. The rapid infrastructure developments have brought up respective debt levels in various levels of governments, and there exist strong concerns on whether provinces with poor development levels are on the edge of financial distress. In addition, it is also unclear on the relationship between local economic development and high debt levels. This research is an attempt to answer that question, and provide observations and analysis based on past local debt data. In summary, this research used provincial LGB data and fiscal income statistics to establish relationships with local debt burden, governors’ financing decisions, as well as the LGB issuance limit setting process. Compared to existing research, updated provincial level data will be used (2015-2021).