Most of our focus over the last couple years has been on China's "national team," the central bank and government/Party. There is a whole 'nother world of problems at the regional, provincial and municipal levels.
From the Wall Street Journal, November 29:
Beijing’s recent attempt to address municipalities’ trillions in hidden debt only scratches the surface
In Shanwei, a city on China’s southeastern coast, dozens of medical staff took over the hall of a public hospital last month to demand wages and bonuses that hadn’t been paid. Wearing white coats and scrubs, some held up pieces of paper that read, “We need to eat.”
A few weeks earlier, retired city employees of Yichun in northeastern China gathered to protest months of missing pension payouts.
While labor disputes aren’t uncommon in China, a recent increase in such incidents emerging on social media suggests many of the country’s local governments are strapped for cash. Cities across the country are struggling with trillions in debt—much borrowed off the books—as traditional sources of revenue such as land sales have waned.
An attempt this month by Beijing to address the problem of local governments’ enormous debt has only scratched the surface, as authorities grasp for ways—such as cutting medical benefits and searching for unpaid taxes—to plug holes in their budgets.
The cash crunch threatens China’s economic growth, since local governments carry out much of China’s investments and indirectly impact household finances as employers of civil servants and contractors of private businesses. The stakes for China’s stagnating economy are even higher with President-elect Donald Trump promising to slap China with punitive tariffs on its exports to the U.S.
About 1,200 worker protests over unpaid wages or other compensation-related grievances have occurred nationwide so far this year, following more than 1,600 such incidents last year, according to videos and posts on social media that are tracked by Hong Kong-based nonprofit China Labour Bulletin. That is up from about 700 in 2022 and around 900 in 2021.
For years, local governments used complex state-owned funding vehicles that borrowed on their behalf, often to finance projects with little economic benefit. Across China, there are railroads with too few commuters, industrial parks with no tenants and even a ski resort in an area with little snow. Meanwhile, the trillions of yuan in revenue that local governments collect from selling land has shrunk sharply since the collapse of China’s epic property boom.
Beijing has said local governments’ “hidden debt that needs digesting”—without elaborating on how they define that—stood at the equivalent of $2 trillion at the end of last year, but economists have put the total hidden debt at between $7 trillion and $11 trillion. As much as $800 billion of that debt is at a high risk of default, economists estimate.
Monthly debt repayment across provinces reached 125% of monthly revenue at some points last year, according to an analysis by Victor Shih, a professor at the University of California, San Diego, who researches China’s politics and financial system.
China this month attempted to address the problem with a $1.4 trillion package to swap local governments’ off-balance-sheet debt with new bonds aimed at easing their financial burden. The debt swaps push maturity dates into the future, but don’t pay down the money owed.
“It will alleviate the cash-flow pressure of some local governments,” said Shih. “But overall, the impact is going to be pretty marginal.”
Local governments bear the brunt of kick-starting economic growth and providing services such as public education and healthcare, but Beijing has been controlling the national purse strings by taking over a large chunk of the local governments’ tax income.
Covid-era costs have added to local authorities’ expenses, while the property market downturn has led to a sharp drop in land sales, one of the very few sources of income local governments get to completely keep for themselves....
....MUCH MORE
