China requires Detroit-style bankruptcy

China requires Detroit-style bankruptcy

China actually requires letting local authorities take responsibility for their funds, including permitting bankruptcies, as part of a vigorous effort to have their debt risks defused. That’s what a major bank official unveiled on Monday.

Apparently, major government control of the scale of local government bonds needs to be removed, while responsibility to issue and also repay bonds needs to be strictly held by the city or county, which will actually employ the finances. That’s what the head of the People's Bank of China's research bureau, Xu Zhong told in an editorial on the financial news site Yicai.

At a gathering this week the country’s top leadership decided to take strict measures to strengthen the regulation of local government debt in 2018 as policymakers are considering reining in a huge debt pile and also reducing financial risks facing the national economy.

China’s government requires clarifying responsibility because it actually explores a bankruptcy system for local authorities, as Xu stressed, because there’s still a hope that the major government is going to bail out those running into fiscal issues.

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