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China Briefings

Reports on China issued by Samsung Economic Research Institute

Looming Debt Crisis from Local Governments

Looming Debt Crisis from Local Governments

Samsung Economic Research Institute Beijing Office

Feb. 15, 2011

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1. Soaring Local Government Debt

□ Reasons behind rising local government bond issuance and definition of local bonds

- Local government financing platforms are state-owned local enterprises which are established by providing land, real estate, equity and assets.
  • Funds raised by local government financing platforms are usually invested into infrastructure construction and public projects.
- Since the central government is currently restricting local government bond issuances, local governments, which need financial resources for local economic development, are raising funds from various financing platforms they have established.
  • According to Article 20 of the Budget Law of the People's Republic of China, local governments must consider their spending when drawing up a budget.
  • At the same time, local governments are not allowed to issue bonds with the exception of particular cases stated by Chinese law and the China State Council's paper.

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