1/7
Caixin: "Once limited to funding new infrastructure projects, local government special bonds are increasingly being used to supplement local government budgets, repay overdue private contractors, and even to support struggling legacy PPP projects."
caixinglobal.com/2025-06-18/chi…
Caixin: "Once limited to funding new infrastructure projects, local government special bonds are increasingly being used to supplement local government budgets, repay overdue private contractors, and even to support struggling legacy PPP projects."
caixinglobal.com/2025-06-18/chi…
2/7
According to Caixin, this shift in the use of special bonds "signals a growing recognition that China’s legacy public-private partnership model — once a darling of infrastructure financing — has become a fiscal burden as local governments fall behind on payments."
According to Caixin, this shift in the use of special bonds "signals a growing recognition that China’s legacy public-private partnership model — once a darling of infrastructure financing — has become a fiscal burden as local governments fall behind on payments."
3/7
I would add that it also confirms what some of us have known for over a decade—a large and growing share of infrastructure investment simply does not make economic sense, and has been pursued mainly to generate economic activity.
I would add that it also confirms what some of us have known for over a decade—a large and growing share of infrastructure investment simply does not make economic sense, and has been pursued mainly to generate economic activity.
4/7
After all in a system in which interest rates are set to levels well below nominal GDP growth rates, it would be almost impossible for debt-servicing costs to rise faster than GDP, and faster than tax revenues, if the debt had been used to fund infrastructure...
After all in a system in which interest rates are set to levels well below nominal GDP growth rates, it would be almost impossible for debt-servicing costs to rise faster than GDP, and faster than tax revenues, if the debt had been used to fund infrastructure...
5/7
investment whose value to the economy exceeded or even roughly approximated its cost. Had that been the case, the resulting growth in economic value-creation, and in taxes, would have more than covered the resulting rise in debt-servicing costs.
investment whose value to the economy exceeded or even roughly approximated its cost. Had that been the case, the resulting growth in economic value-creation, and in taxes, would have more than covered the resulting rise in debt-servicing costs.
6/7
But not only has debt risen more quickly than the economy, it has done so at some of the fastest rates in history, even as interest rates have been set well below nominal GDP growth rates. This might suggest the sheer extent of non-productive investment.
But not only has debt risen more quickly than the economy, it has done so at some of the fastest rates in history, even as interest rates have been set well below nominal GDP growth rates. This might suggest the sheer extent of non-productive investment.
7/7
Beijing wants to rein in this kind of infrastructure investment (as do, obviously, the banks) but, as I explain in the piece below, it cannot do so as long as it sets excessively high GDP growth targets and is unable to get consumption to surge.
carnegieendowment.org/posts/2025/05/…
Beijing wants to rein in this kind of infrastructure investment (as do, obviously, the banks) but, as I explain in the piece below, it cannot do so as long as it sets excessively high GDP growth targets and is unable to get consumption to surge.
carnegieendowment.org/posts/2025/05/…
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