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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 202

China Business Intelligence No. 202

Samsung Economic Research Institute Beijing Office

Aug. 18, 2011

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After the government encouraged investments in public projects to meet the challenges of the 1997 Asian financial crisis and 2008 global financial crisis, local government debt soared. Local governments have used roundabout or undue tactics to secure loans and ended up with a large amount of debt. With bond terms reaching maturity, violation of contracts and transfer of assets have surfaced, disrupting the financial market. The situation is controllable, as local governments can create revenue and the amount of debt can be covered by the central government. The local government debt issue may cause serious financial problems including stagflation. To alleviate the problems, the central government should restructure the current system, separating financial authority and responsibility.

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