Discussion and Verification: Chinese Development Path

Yifan Li

doi:10.54097/yc87h250

Authors

Yifan Li

DOI:

https://doi.org/10.54097/yc87h250

Keywords:

China development path, Investment, Local government financing vehicles

Abstract

This paper examines the long-term implications of China's extensive investment in infrastructure and real estate, suggesting that the country may have reached a stage where returns on such investments are significantly diminishing. Merely loosening lending regulations is unlikely to yield sustainable benefits and could, in fact, worsen the financial strain on local governments, particularly when accounting for hidden liabilities from local government financing vehicles (LGFVs), which are projected to surpass half of the country's GDP. The heavy dependence of local governments on land sales for revenue further complicates the issue, as a downturn in the real estate sector could lead to a dramatic decline in this vital income source. While these challenges are theoretically solvable, they are extremely difficult to address in practice. The paper stresses the need for a more balanced and diversified approach to economic development, particularly in addressing local government debt and finding new revenue streams beyond land sales.

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