The Local Government Crisis 2007-2014: When China's Financial Management Faltered

This paper investigates why China's leaders were unable to halt the mounting crisis in funding local government from 2009. The analysis traces a long history of co-option of the banking system by local officials. The national leadership was obstructed in monitoring and controlling the escalating dependence on banks to fund local administrations because of a long-standing failure to reform key legal, fiscal and administrative systems. The ideological reluctance to implement reforms in land ownership fostered an unauthorised and often unlawful symbiosis between local officials, property developers and bank executives. The paper argues that the Government's plans for restructuring local government finances through the use of bond flotations in particular will face considerable delay.