The overall level of debt is a major challenge for China and to lower it, Beijing must rethink the sources of revenues for its local bodies which is responsible for 85 percent of government spending, the IMF has said. “In terms of public finances, the official numbers for the debt and deficit are modest. The issue is that China does carry out quite a substantial share of its public expenditures at subnational levels,” Vitor Gaspar, Director, IMF Fiscal Affairs Department told reporters at a news conference.
“The main concern has to do with the level and pace of accumulation of overall debt, private and public. So, the control over the debt level — in particular, the rhythm of debt accumulation — is a major challenge for the Chinese economy,” he said. There is a projected accumulation of debt which is sizable in the period 2018 to 2023, the top IMF official said.
China thus has to tackle two challenges: the overall rebalancing of its economy, and the issue of vertical imbalance in the public finances, Gaspar said. “In order for China to be able to organise itself efficiently in the provision of public services and ensure fiscal discipline at all levels of government, it is necessary to rethink the sources of revenues for sub-national governments,” he said.