Sustainable Local Public Finance in China: Are Muni Bonds the Structural Solution?

35 Pages Posted: 13 Apr 2018

See all articles by Ronald W. Anderson

Ronald W. Anderson

London School of Economics & Political Science - Department of Finance; Centre for Economic Policy Research (CEPR); Sun Yat-sen University (SYSU) - Xinhua College

Lu Hua

Fudan University - School of Economics

Date Written: April 8, 2018

Abstract

We assess the economic and institutional factors that have driven the growth of debt in China. We ask whether there is a clear strategy for managing the risk that such debt levels pose and assess the likelihood that policy actions will prove successful. In particular, we explain how much of the growth of debt is attributable to particular features of Chinese local public finance and why a program involving swapping municipal bonds for older city construction bonds and other debt has emerged as a crucial component of the Chinese strategy. We assess this strategy in detail and argue that this constitute a deep structural reform that is having clear and important consequences for the structure of China’s domestic debt markets. We present evidence that these changes in structure are being reflected in bond market pricing.

Keywords: Chinese economy, debt overhang, bond market, enterprise reform, fiscal form, financial liberalization

JEL Classification: G12, G30, G32, H70, P31, P34

Suggested Citation

Anderson, Ronald W. and Lu, Hua, Sustainable Local Public Finance in China: Are Muni Bonds the Structural Solution? (April 8, 2018). Available at SSRN: https://ssrn.com/abstract=3158688 or http://dx.doi.org/10.2139/ssrn.3158688

Ronald W. Anderson (Contact Author)

London School of Economics & Political Science - Department of Finance ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6204 (Phone)
+44 20 7955 7420 (Fax)

HOME PAGE: http://personal.lse.ac.uk/ANDERSOR/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Sun Yat-sen University (SYSU) - Xinhua College ( email )

China

Hua Lu

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China
86-21-65643821-606 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
155
Abstract Views
873
Rank
285,645
PlumX Metrics