China's Local Government Bond Market

IMF Working Papers, September 28, 2018

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China's Local Government Bond Market

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Bibliographic details

• Authors: Waikei R Lam, Jingsen Wang
• Published: September 28, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484378410.001

Summary

• Local governments play a significant role in China’s public finance and fiscal operations.
• The size of local government debt has grown rapidly over the past years, exceeding the stock of sovereign debt in China.
• Despite rapid growth, the local government bond market is still underdeveloped.
• Severe impediments identified include low liquidity, weak credit discipline, and structural fiscal deficit in local governments.
• Reforms should harmonize tax and regulations, build liquidity, and advance fiscal reforms to tighten off-budget borrowing and address intergovernmental imbalances.

Major Findings

• Rapid expansion of local government debt has led its stock to exceed the stock of sovereign debt in China.
• The local government bond market remains underdeveloped despite rapid growth.
• Key impediments:
  • Low liquidity.
  • Weak credit discipline.
  • Structural fiscal deficit in local governments.

Policy Recommendations

• Harmonize tax and regulations to support market development.
• Build liquidity in local government bond markets.
• Advance fiscal reforms to:
  • Tighten off-budget borrowing.
  • Address intergovernmental imbalances.

Content in this bundle

• China’s Local Government Bond Market, WP/18/219, September 2018
  • China’s Local Government Bond Market, WP/18/219, September 2018 (Markdown version)
  • China’s Local Government Bond Market, WP/18/219, September 2018 (PDF)