Jiahao Yuan
China’s economic growth trend, which continues to stall, has become an important and attractive research topic for economists worldwide. Since Q3 of last year, China’s central government has begun to launch a series of fiscal and monetary policies in order to stimulate the economy to get back on track. Amongst all of the policies, the most striking is the “debt reduction plan” of up to 10 trillion yuan (1.36 trillion US dollars). The Chinese government has launched this unprecedented economic stimulus policy as a response to the current debt crisis, which has become the primary factor affecting many of China’s de facto predicaments, such as sluggish consumption, declining investment, shrinking exports, declining income and deflation, etc. If the current debt crisis cannot be properly resolved, it will gradually become the last straw that breaks the camel’s back for China’s macro-economy.
Explicit and implicit debt
Firstly, it is necessary to clarify that the debt mentioned in the article is not the same type as in the “debt trap”, which has essentially become a buzzword in the international geopolitical arena. The so-called “debt trap” mainly refers to China’s external sovereign financing to other less-developed countries (LDCs). In contrast, the debt referred to in this article is China’s domestic debt. More specifically, it mainly refers to the debt of Chinese local governments. At the same time, the Chinese government’s debt reduction plan is also aimed at local government debt rather than the debt undertaken by the central government.
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