Fiscal Vulnerabilities and Risks from Local Government Finance in China

IMF Working Papers, January 14, 2014

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China weathered the global financial crisis better than most, thanks to a large and timely stimulus.
The stimulus was mainly in the form of off-budget infrastructure spending and thus not visible in the headline fiscal data.
The authors construct a time series for the augmented fiscal deficit and debt—augmented to include off-budget activity—that better illustrates the counter-cyclical role of fiscal policy.
The results show that the augmented fiscal deficit and debt are both considerably higher than the headline government data suggest.
Nonetheless, at around 45 percent of GDP, the augmented debt is still at a manageable level.

Off-budget infrastructure spending materially increased fiscal activity beyond headline fiscal data.
Augmented fiscal deficit and augmented debt provide a clearer picture of counter-cyclical fiscal policy during the global financial crisis.
Augmented debt is estimated at around 45 percent of GDP.

Subject: Contingent liabilities, Fiscal policy, Government debt management, Infrastructure, National accounts, Public debt, Public financial management (PFM)
Keywords: augmented fiscal deficit, balance sheet, bank loan, China, Contingent liabilities, debt estimate, debt issuance, debt shock, debt stock, Debt sustainability, fiscal deficit, Fiscal Risks, Fiscal Vulnerabilities, Global, government debt, Government debt management, government debt stock, Gross Financing Needs, IMF staff estimate, Infrastructure, Land Finance, LGFV debt, local government, Local Government Finance, maturing debt, net proceeds, SOE debt, WP