Shomron Center for Economic Policy Research

In Search for an efficient Institutions

PRC Governmental investments’ risks are soaring


In our books’ special chapter we addressed the problems and risks caused by entrepreneurs’ discretionary and unlawful prosecution in PRC.

Huge financial reserves causes the governmental officials’ wrong perception, that Government  could substitute direct foreign and local private investments. Chinese Government really tried to fill this gap, encouraging high growth rate.

Some experts pointed out efficient empowerment of local authorities  causing strong incentives to earn more in order to spend more. Under new challenges,  this power to borrow and to invest on local (provincial) level turned to be source of big financial troubles.

On one hand, policy to go borrow local, to go spend / to invest local, to shift debt burden from central to local government, looks reasonable, restricting risks of default in the Beijing.  On other hand, attempts  to support high growth rate by provincial governments’ activities, could cause aggregate governmental debts escape out of control.

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