How to Make a Debt Crisis Even Worse
As Chinese property developers run out of other people’s money, cities are making poor decisions. By Readers Sept. 7, 2023 5:21 pm ET A construction site of residential buildings in Tianjin, China, Aug. 18. Photo: TINGSHU WANG/REUTERS Mickey Levy eloquently describes how China’s overreliance on capital construction has unbalanced its economy and led to a looming debt crisis (“China Pays for Economic Mismanagement,” op-ed, Aug. 25). He notes that while Beijing imposes mandates, it’s up to cities and provinces to implement policies. While the cities and provinces have to provide healthcare, education and social services, they have no good, reliable source of revenue. Real-estate taxes at Western levels are unknown, and there is insufficient wage income to tax. While Tier I cities can tax business economic activity, poorer cities ha
A construction site of residential buildings in Tianjin, China, Aug. 18.
Photo: TINGSHU WANG/REUTERS
Mickey Levy eloquently describes how China’s overreliance on capital construction has unbalanced its economy and led to a looming debt crisis (“China Pays for Economic Mismanagement,” op-ed, Aug. 25). He notes that while Beijing imposes mandates, it’s up to cities and provinces to implement policies.
While the cities and provinces have to provide healthcare, education and social services, they have no good, reliable source of revenue. Real-estate taxes at Western levels are unknown, and there is insufficient wage income to tax. While Tier I cities can tax business economic activity, poorer cities have relied on land-lease sales.
With the property developers running out of other people’s money, many cities have resorted to selling land to their own local-government financing vehicles at distorted prices. This self-dealing with already-indebted entities exacerbates the crisis.
David Robinson
University of California, Berkeley
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