Address local government debt problem

China's central government should take action to solve the debt problems of local governments before they evolve into crises, says an editorial in China Business News. Excerpt:

It is estimated that Chinese government debt accounts for about 50 percent of the nation's gross domestic product in 2013. In fact, this debt is probably underestimated and the GDP is exaggerated.

Local governments always think the central government will help them pay the debt in case of their bankruptcy. The central government should let its local counterparts know that its help is conditional.

First, local government debt should be transparent, but there is no accurate data or statistical framework to expose the debt conditions of local governments. It is good news that the central government initiated a nationwide auditing campaign for local government debt.

Second, the central government should make local government debt level a criterion in assessing local officials’ performance in their office term to prevent their resorting to the raising of debt for economic growth.

Third, there must be a ceiling limit for the debt of local governments.