‘Progress’: China’s campaign to ease local government debt scores first big win

China’s debt relief campaign for local governments, launched last year, has delivered its first major success story after Inner Mongolia exited the central government’s high-risk list.

The autonomous region was among 12 province-level jurisdictions flagged by Beijing for risky debt levels, with its exit revealed in a local budget review discussed internally in late July but only released to the public earlier this week.

“[We must] consolidate the progress made in exiting the list of key high-debt regions and guide local authorities to continue debt resolution efforts based on local conditions,” according to a statement released by the finance and economic committee of the northern region’s People’s Congress.

Inner Mongolia, the country’s top coal miner and a major supplier of renewable energy and dairy products, had previously been forced to shelve a subway project in Baotou – the region’s second-largest city – because of financial risks.

Local government debt, which accumulated after the 2008 global financial crisis, is widely seen as a ticking time bomb. It reached 51.95 trillion yuan (US$7.23 trillion) by the end of June, government data showed, driven by years of aggressive borrowing, especially through local government financing vehicles.

The model has become increasingly unsustainable, particularly as fiscal revenue from land sales has declined.

In September 2023, the State Council issued a directive targeting 12 high-risk province-level areas and called for debt control and restructuring over the following two years, along with support measures.

South China Morning Post