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China halts local projects as municipal debt hits $13 trillion

Construction under way in the city of Zhengzhou (Yuhongen/Dreamstime)
Beijing has told a dozen local governments to halt or delay infrastructure projects to limit debt increases, Reuters reports

Local governments in China have some autonomy in how they implement central government development directives by borrowing and issuing bonds.

It has resulted in total municipal debt hitting $13 trillion at the end of last year, equivalent to 76% of GDP in 2022.

The State Council, China’s supreme state body, has told state-owned banks and 12 local governments to delay or halt projects where less than half of the planned investment has been disbursed.

Projects include roads, airports, and railways in areas with a high risk of defaulting on debt obligations.

Social housing is exempt.

The local governments include seven provinces, such as Liaoning and Jilin on the border with North Korea, as well as Guizhou and Yunnan in the southwest.

Three autonomous regions are affected, as well as the cities of Tianjin and Chongqing.

The brake on local government spending clashes with China’s long standing strategy of building infrastructure to stimulate economic growth, which last year was 5.2% – sluggish by Chinese standards.

The sub-national debt burden has been worsened by the collapse of China’s debt-fuelled property bubble.

This has cut land sales to developers, an important source of revenue for local governments.

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