China is addressing its debt problems, particularly at the local government level, where reliance on non-productive investments in property and unsustainable fiscal practices have led to financial challenges.
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According to a source cited by SCMP, the national financial work conference set to start today will primarily focus on resolving the country's "debt problems". The source adds that "the core is the fact that local governments are…https://t.co/ykdwaJyG4q via @scmpnews— Michael Pettis (@michaelxpettis) October 30, 2023
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Local governments are "out of money" because for over a decade they have structured their economic activity and their business, financial, and political institutions around two unsustainable processes.— Michael Pettis (@michaelxpettis) October 30, 2023
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This isn't a problem throughout China. There are 6-7 provinces and municipalities, representing over 40% of total GDP, who have reasonably high incomes, healthy growth, growing working populations and high but manageable debt.— Michael Pettis (@michaelxpettis) October 30, 2023
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This means that "stabilizing" property prices, if that is even possible, won't resolve the underlying debt problem, as many hope it will. The debt problem can only be resolved by much deeper structural reforms that rebalance the domestic growth engines.— Michael Pettis (@michaelxpettis) October 30, 2023