Opinion: How to Fix China’s Local Government Debt Crisis

China’s local government debt has been seen as a looming crisis. Following the central government’s recent pledge to comprehensively resolve local government debt issues, the anxious markets experienced a temporary reprieve.

It’s anyone’s guess how big the problem is. After China’s 4 trillion yuan ($556.4 billion) stimulus plan in 2008, local debt began to escalate dramatically. Through the establishment of thousands of local financing platforms, local debt, starting from around 5 trillion yuan, has soared to over 100 trillion yuan in a span of 15 years. Including central government debt, China’s total debt-to-GDP ratio remains, albeit barely, within safe limits. However, the speed of this growth has only rarely been seen globally.