China's local governments are heavily in debt and the situation is so critical that the CCP's four major economic advisors cannot sit still. (AFP file photo)
[Compiled by Lu Yongshan/Comprehensive Report] China's local governments are heavily in debt and the situation is so critical that the four major economic advisors of the Communist Party of China cannot sit still. Independent commentator Cai Shenkun published an article on the X platform on September 21 titled "Do the Queen's Economists Force the Palace or Remonstrate?" The four Queen's Economists, Lin Yifu, Yu Yongding, Yao Yang, and Li Xunlei, who usually speak cautiously, acted like a leopard this time and concentrated their firepower to attack local debt and force the central government to adopt iron-fisted life-saving policies as soon as possible.
The 2026 Tsinghua PBC Chief Economist Forum will be held on September 19. According to "21st Century Business" magazine, in the roundtable discussion on "Macropolicy and Global Rebalancing", Lin Yifu, Boya Chair Professor at Peking University and Dean of the Institute of New Structural Economics, Yu Yongding, member of the Chinese Academy of Social Sciences, Yao Yang, professor and dean of Dishui Lake School of Finance at Shanghai University of Finance and Economics, Li Xunlei, chief economist of Zhongtai International, and others attended the meeting, bluntly saying that solving local debt is more urgent than real estate. Yu Yongding even pointed out directly that the central government's books are clean, but the local government's books are in a mess.
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Cai Shenkun pointed out, why are local government accounts in such a mess? The central government has always known the true ledger of local debt, but just pretended not to know. Now that local debt has rolled in, the central government is obviously at a loss to do anything. Local governments are heavily in debt. Money owed to banks, urban investment companies, builders, and suppliers cannot be repaid. The central government requires debt reduction, so local governments can only tighten their belts. If the trouble continues, they may not even be able to pay wages or pensions.
Yao Yang spoke more harshly! He believes that the problem of local debt is more serious than real estate. He estimated that the scale of the "triangular debt" raised by local government debt has reached about 30 trillion yuan (NT$141.8 trillion). The entire economy has been unable to turn around, and this is the most terrifying aspect of local debt.
If the government doesn't pay, companies won't dare to invest. If companies don't invest, they won't recruit people. The youth unemployment rate keeps hitting new highs. People can't make money, so what are they going to spend on it? Enterprises will not dare to invest if they cannot afford consumption. The four economists directly kicked the ball to the central government. Don’t let local governments shoulder the responsibility. It’s time for the central government to come to the rescue.
Lin Yifu mentioned Zhu Rongji's courage in dealing with bank bad debts. It was impossible for banks to slowly absorb the bad debts. In the end, it was the finance department that took action to divest bad assets, which led to the crazy development of the banking industry. Yao Yang quoted the words of British economist Keynes, "In the long run, we are all dead." This sentence is particularly harsh today. Yu Yongding even quoted a quotation from Mao Zedong: "Don't miss the opportunity, the time will never come again. Ten thousand years is too long, seize the day."
Cai Shenkun pointed out that four economists shouted in the same direction at the same time, "Hurry up! Stop delaying!" Why can't even they sit still? It doesn't matter whether they are forcing the palace or admonishing. What matters is whether Xi Jinping is willing to listen or whether he understands.
If the central government continues to increase leverage, replace local debts on a larger scale, and clean up government debt owed to enterprises, it shows that these voices have at least resonated. If local governments are still required to repay debts, maintain investment, maintain wages and stimulate consumption, then local governments can only tear down the east wall to pay for the west wall. When the wall is demolished, the problem will be a comprehensive local explosion.
Cai Shenkun said that real estate has taught China a lesson. Poor handling of local debt will have a more severe impact on Chinese society than real estate. Are the four economists crying for poverty for local governments, or have they smelled a stronger smell of gunpowder?
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