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Debt Risk after the Reform: China’s Land-Backed Municipal Bonds

Timna Michlmayr

Land-backed borrowing emerged as one of China’s major economic risks after the accumulation of local government debts and the implementation of the RMB 4-trillion fiscal stimulus package in 2008. Despite the introduction of far-reaching debt reform and the reorganization of local borrowing mechanisms in 2015, the era of land-backed debt increases and the leveraging of public land resources is not yet over. As exemplified by the recent developments in China’s municipal bond market, new mechanisms for land-backed borrowing were introduced on a trial basis in 2017 under the novel debt management regime. By critically evaluating the introduction of land-backed municipal bonds, this research paper sheds light on recent developments in local government borrowing in China that have not been discussed in detail so far. My evaluation draws on an in-depth analysis of central and local policy documents
issued after 2008, a data set on municipal bonds issued after 2017, insights from preliminary field research trips, and secondary literature on the topic. I argue that the introduction of landbacked bonds reflects an attempt to strengthen the top-down control over local borrowing, with the leveraging of land necessarily being upheld due to institutional constraints and path

Institut für Ostasienwissenschaften
Asien: the German journal on contemporary Asia
ÖFOS 2012
506014 Vergleichende Politikwissenschaft, 502027 Politische Ökonomie, 602045 Sinologie
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