From CNBC: 2024-09-15 22:45:41

Local governments in China are feeling the impact of a consumption slowdown due to the real estate market slump and debt issues. Property values are falling, reducing local government revenue. S&P Global Ratings analysts predict it will take 3-5 years for finances to recover. Delays could hinder debt stabilization efforts.

China is pushing to recoup taxes from businesses, leaving many struggling companies to pay back large sums of overdue taxes. This move has resulted in public uproar and negatively impacted business confidence. Retail sales are slowly picking up, but overall growth has been stagnant, reflecting consumer uncertainty.

Debate continues in China on how to stimulate growth and boost revenue amidst a focus on reducing debt levels. Investment-led strategies have led to weak GDP growth and rising debt-to-GDP ratios. Policymakers are being urged to shift towards consumption-driven growth to prevent further economic challenges.

China’s local government financing vehicles, which have taken on significant debt to fund projects with limited returns, pose a “grey rhino” risk for banks. This interconnected system is more concerning than real estate debts, making it challenging to find a quick solution. The government is buying time to address liquidity issues.

Read more: China’s local government debt problems are a hidden drag on economic growth