Local Governments Find New Ways to Play Debt Game

By Wang Xiaoxia and Fran Wang

In 2015, the district government of Tongzhou in the eastern city of Nantong, Jiangsu province, wanted to build a wharf. But instead of playing by the rules of the Budget Law and Government Procurement Law and putting the project in the budget, local officials went down a different path to make it easier to get the deal done.

They hid the investment by farming it out to one of the district’s local government financing vehicles (LGFVs), companies set up specifically to fund spending outside of the budget. To get around new rules preventing local governments from using LGFVs to pay for infrastructure construction, officials decided to cheat by classifying the spending as the procurement of services from a company.

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