Fighting local govt debt

Chinese leaders have pledged to tackle the problem of local governments' debts next year and create a stable economic and social environment to promote reforms, according to the statement issued by the Central Economic Work Conference that ended on Friday. This is the first time "controlling and addressing local government debt risks" has been made as an especially important task in economic work.

In recent years, the impact of growing local government debt on the Chinese economy has sparked an intense debate among economists, financial analysts and the investment community. Macroeconomics is, in itself, a fascinating field of social sciences. And as the saying goes, any two economists will have three different opinions on one subject. In the case of local government debt, this seems to apply par excellence. But it is hard to draw conclusions before data of latest overall local government debt is revealed.

There are two main questions that people struggle to come to terms with when it comes to local government debt: What is the actual level of the debt and how this has evolved over time; and what have the returns on local government investments been over time.