Local government debt skyrocketed during the last years of China’s zero COVID polices and has continued to rise unabated, troubling Beijing and rattling international financial markets. 

Jean Oi will share her research on the causes of this dilemma and reflect on solutions that Beijing is proposing to handle the problem. She will show that while COVID certainly raised expenditures for local governments, it was state policies during the pandemic to enforce fiscal discipline and deleverage the real estate sector that triggered growing mountains of local government debt.

The collapse of the real estate sector shrank revenues from land transaction fees that previously filled a huge hole in annual local government budgets and serviced existing debt.

The evaporation of land revenue during the already costly COVID lockdowns created a “perfect storm” that decimated local government budgets and ballooned local government debt, with no way out except to borrow more.

Oi will end by considering whether the solutions proposed by Beijing to handle the problem will be enough to steer through the quandary.

Jean C. Oi is the William Haas Professor of Chinese Politics in the Department of Political Science and a Senior Fellow of the Freeman Spogli Institute for International Studies (FSI) at Stanford University. She directs the China Program at the Shorenstein Asia-Pacific Research Center and is the Lee Shau Kee Director of the Stanford Center at Peking University. She holds a Ph.D. in Political Science from the University of Michigan. Oi is the current President of the Association for Asian Studies.

Recent publications include Zouping Revisited: Adaptive Governance in a Chinese County, co-edited with Steven Goldstein (Stanford University Press, 2018); Fateful Decisions: Choices that will Shape China’s Future, coedited with Tom Fingar (Stanford University Press, 2020); “Firms as Revenue Safety Net: Political Connections and Returns to the Chinese State,” co-authored with Xiaojun Li (China Quarterly, 2022), and “China’s Local Government Debt: The Grand Bargain,” co-authored with Adam Liu and Zhang Yi (The China Journal, 2022). Her new research focuses on China’s Belt and Road Initiative.

Introduction by Xiaojun Li, Associate Professor of Political Science at NYU Shanghai.