The numbers might look frightening, but China’s local government debt problems can be managed if its leaders proactively address them and make genuine moves to rebalance the economy.
The next five years will be crucial for China. However, it is hard to say for certain whether the country’s leadership will take the bitter medicine that is necessary to move the economy from an investment-led to a consumption-led model. What we can say for certain is that the country must undertake a long and, maybe, painful process to deal with the issue of inflation and the extent of bad loans in the banking sector. Saying this, these issues can be managed over time if China proactively addresses them and genuinely moves to rebalance its economy.
In summary, while the numbers may be bad, there is good news – China’s starting government debt to GDP is quite low so, while the losses are large, the numbers should be manageable over time.
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