China’s central government is borrowing more to help diffuse a $9.3 trillion time bomb in hidden local debt. But the resulting shift in fiscal power has its own risk: demotivating regional officials.
Beijing’s rare decision to issue 1 trillion yuan ($137 billion) of central debt, and transfer the funds to local governments, was hailed in October as a relief for struggling provinces.
The move came as China clips the borrowing ability of local authorities, including by banning the creation of the financing vehicles that allowed off-balance debt to spiral.
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