Herbert Poenisch: The escalation of local government borrowing and their debt is a major concern in China's current economic landscape. The authors should be commended for shining more light onto what drives this borrowing, which made up the major part of government debt in the recent past.
Another major insight was the link between the local government financing vehicles (LGFVs) and shadow banking, another major concern of the current Chinese economy.
The authors convincingly argue why this dilemma has arisen, a major departure from the earlier scenario where local governments were not allowed to run fiscal imbalances or borrow. The structural imbalance between providing public goods and services at the local level while having to rely on fiscal transfers has been complicated by moving projects to the local authorities since 2008, financed by special purpose transfers.
The authors clearly present the dilemma for local governments—having to fulfill a greater role...