Yu Yongding: Can China Stabilize Its Economy Without Increasing Central Government Debt?

When effective demand weakens, a government often looks to boost infrastructure investment to drive economic growth. The core of China’s expansionary fiscal policy is having local governments, and enterprises, especially state-owned ones, increase infrastructure investment.

However, a successful implementation of infrastructure investment and its effectiveness in stimulating China’s economic growth are subject to external conditions such as Covid-19 restrictions, and whether certain operational problems can be solved. Two major problems lie in the financing structure of infrastructure investment and the use of local governments’ special-purpose bonds (SPBs).