China’s local governments are approaching a fiscal black hole

中国地方政府正面临财政黑洞的挑战。

Economist

2025-07-10

7 分钟
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  • Ugly numbers lurk in the books of China's local governments.

  • An annual audit released on June 24th showed that over 40bn yuan ($6bn) of state pension funds

  • were misappropriated last year in 13 of 25 provinces looked at.

  • There may be more dodgy practices but the auditors only have the resources to focus on certain bits of the country each year.

  • Among other things, the money was used to repay government debts.

  • Another 4bn yuan was lifted from a programme to pay for refurbishing schools.

  • And billions more were diverted away from farming subsidies.

  • Local officials "are always stealing our money",

  • said one angry commenter on Weibo, a social-media platform.

  • "It's like trusting the mice to look after our rice," wrote another.

  • In truth, local officials are motivated more by desperation than greed.

  • Across provinces, counties and cities, they are responsible for the bulk of government spending.

  • But much of China's tax revenue flows instead to the central government.

  • Local officials used to be able to raise more funds by selling land to developers.

  • But a property slump since 2021 has slashed that source of revenue.

  • Past splurges on infrastructure, meanwhile, have left many governments with huge "hidden" debts,

  • usually within semi-commercial firms known as local-government financing vehicles.

  • The IMF estimates that such firms sit on 66trn yuan of debt, equivalent to about half China's annual GDP.

  • China's central government has little sympathy for what it regards as fiscal irresponsibility.

  • It hopes that with better budgeting local governments can manage to cut waste at all levels