Opinion | Does one county’s debt woes highlight the potential pitfalls buried under the surface of China’s economic prosperity?
- Dushan county in Guizhou province has accumulated 40 billion yuan (US$5.7 billion) of debt, or around 40 times of its annual fiscal revenues
- The local government of Dushan is in technical bankruptcy, but is unlikely to follow the US city of Detroit as it enjoys an implied unlimited credit guarantee
The county of Dushan in Guizhou province, a poor and remote corner of China, hit the headlines earlier this month after the local authorities’ reckless borrowing to finance a series of white elephant projects was vividly recorded in a documentary that went viral.
The government of Dushan, which oversees a mountainous area with a total population of 360,000, has accumulated 40 billion yuan (US$5.7 billion) of debt, or around 40 times its annual fiscal revenues. By any standard, the local government of Dushan is in technical bankruptcy.
Fiscal discipline is ignored or easily skirted, and the line between financial and fiscal affairs is blurred on a nationwide basis
China’s official media blamed Pan Zhili, who served as the local Communist Party boss from 2010 until 2019 when he was sacked and put under investigation for corruption, as the reason for the financial losses and fiscal mess.
But the fundamental problem goes much deeper than an over ambitious cadre who had little respect for the need for a return on the county’s investments.
Dushan is a tiny spot on China’s economic landscape and the troubles there are unlikely to spread. Under China’s governmental structure, there is no legal or institutional basis for a local government to file bankruptcy, as the American city of Detroit did in 2013.
Dushan enjoys an implied unlimited credit guarantee from the Guizhou provincial government, which in turn, enjoys the same from the central government in Beijing.