In Depth: China’s Trillion-Dollar Local Government ‘Hidden Debt’ Dilemma

China’s financial system remains plagued by trillions of dollars in local governments’ hidden debt, as they have long turned to off-the-books borrowing to plug funding shortfalls, which have grown significantly due to the pandemic and property crisis.

To solve the problem, policymakers may need to take drastic measures, such as allowing local governments to sell bad debt to asset managers and giving them a bigger slice of tax revenue, financial scholars said.