Xi’s next crackdown is on local government debt

As China watchers try to get their heads around the myriad policy shifts at this week’s National People’s Congress (NPC), at least one thing is clear: the bubble just burst for local governments around the nation.

In the decade-plus since the 2008-2009 global financial crisis, municipalities engaged in a historic borrowing binge. And in the three years since the onset of Covid-19, they engineered huge land sales to generate revenues lost to lower taxes.

Yet policy priorities at the NPC signal that the autonomy local government leaders had to pump up gross domestic product (GDP) will be significantly eroded under President Xi Jinping’s more centralized rule.