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China’s cities are on the verge of a debt crisis | The Economist
Source: economist.com
Article summary:
1. China's local governments have accumulated a large amount of debt to build infrastructure and boost the country's GDP, with much of it hidden in opaque channels.
2. This debt has become unsustainable due to disastrous policymaking, leading to protests and defaults that could bring chaos to China's bond markets.
3. The central government is transferring funds to localities on a grand scale, but many projects may never become profitable due to low growth expectations in the coming decade.
Article analysis:
The article “China’s cities are on the verge of a debt crisis” from The Economist provides an overview of the current state of China’s local government debt crisis and its potential implications for the country’s economy. The article is generally reliable and trustworthy, as it provides evidence for its claims and presents both sides of the issue fairly.
The article begins by providing an example of wasteful spending in Tianjin, which serves as a metaphor for what is happening across China with regards to local government borrowing. It then goes on to provide statistics about how much debt has been accumulated by local governments through various channels, including lgfvs (local-government-financing vehicles) and informal borrowing methods such as “hidden debt”. It also explains how policymaking has pushed local governments into this situation, citing examples such as zero-covid policies that hurt consumption and property crises that led to a fall in land sales revenue.
The article then goes on to discuss how local governments are attempting to make ends meet by entering costlier and murkier corners of the market or going offshore for dollar-denominated bonds with higher interest rates than those available domestically. It also discusses how this could lead to defaults if not managed properly, noting that 109 out of 319 surveyed local authorities are struggling with interest payments alone. Finally, it looks at potential solutions such as asset sales or transfers from the central government, while noting that these may not be enough in some cases due to low growth expectations in the coming decade.
In terms of trustworthiness and reliability, this article is generally sound as it provides evidence for its claims and presents both sides of the issue fairly without any obvious bias or promotional content. It does not make unsupported claims or present only one side of the argument; instead it explores counterarguments where appropriate and acknowledges possible risks associated with certain solutions proposed (such as asset sales). Furthermore, it does not omit any important points