Research on Legal Pathways for Resolving Local Government Debt Risks in China

Abstract

In recent years, China’s local government debt issues have drawn widespread attention. Since 2014, the government has introduced a series of policies to resolve debt problems and prevent systemic risks. When administrative measures alone prove insufficient to address government debt, restructuring local government finances emerges as an effective path to resolve the debt crisis. This paper employs government fiscal data from 2014 to 2023, along with 2023 data compared to the previous year, to empirically examine the actual state of government debt. Findings reveal severe local government debt issues, manifested in: substantial outstanding debt balances; declining fiscal self-sufficiency rates; rising debt-to-revenue ratios; increasing liability ratios; and expanded issuance of local government bonds and urban investment bonds. Subsequently, the paper proposes a phased approach to resolving local government debt. This includes establishing specialized restructuring standards for urban investment companies, developing refined restructuring criteria for local governments, and strengthening the guiding role of the central government. The study provides a new case for international comparative research on the legal resolution of local government debt and offers fresh perspectives for exploring debt restructuring protections for Chinese local governments.