Chinese President Xi Jinping has initiated strategies to combat a looming $9 trillion debt crisis, focusing on reinforcing the fiscal structure of heavily-indebted local governments. Stricter loan approvals, tighter control on unruly lending, and improved debt management systems form some of the measures that aim to prevent an economic downfall resulting from unsustainable debts.
Persistent borrowing at alarming rates by local governments applies severe pressure on China’s fiscal safety. To curb this escalating crisis and to stabilize China’s fiscal future, Xi has laid out plans to allow local governments to collect a larger proportion of consumption tax, providing an additional revenue source and potentially boosting consumer spending.
This strategy, the third major tax and fiscal reform in China’s recent history, can lead to a more balanced fiscal relationship, enhancing local economic growth while transforming fund allocation methods in both rural and urban areas.
Under this new order, provincial governments will have increased financial autonomy, opening up broader revenue sources for a sustainable development model.
Xi Jinping’s approach to China’s debt crisis
However, the reform also means increased risks needing careful fiscal management and adherence to the central government’s policies.
To facilitate a smooth transition, financial management practices need to be reformed and tax collection systems improved, with intergovernmental relations evolving to accept the new dynamics of fiscal decentralization.
Notably, Xi recently approved a strategy to boost manufacturing in an attempt to strengthen China’s vast $17 trillion economy. Despite potential challenges, such as potential slowdown of consumer spending and exacerbation of social issues, Xi’s reforms signify China’s commitment to a fiscally balanced and economically robust future.
In a new shift, Xi emphasised national safety over economic expansion, pointing to plans to fortify Beijing’s population management system. This move could result in major changes to the country’s social and economic paradigms, indicating a clear and distinctive shift from unchecked growth.
This proposed system could have far-reaching implications, potentially enabling the government to monitor and manage population migration, citizen health, and overall social structure. Concerns remain over possible increased government surveillance and concentrated power, but Xi’s approach signals a commitment to address China’s fiscal and population challenges head-on, prioritizing national safety and stability.
