BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/35
The last big public finance reform in 2014 involved letting provinces and municipalities issue their own bonds with central government approval. The change was supposed to subdue off-budget activity of local governments and improve transparency. While the 2014 changes have yet to be fully implemented, regional bond issues have increased substantially. Off-budget activity, however, remains substantial.
Official figures show that China’s public sector revenues and expenditures have been around 20–25 % of GDP in recent years, with deficits around 2–3 % of GDP. The IMF notes that when off-budget liabilities of local governments are included, revenues are slightly larger than official estimates and spending considerably higher. The IMF calculates the public sector deficit has been running at around 10 % of GDP in recent years and that China’s public sector debt as of end-2015 was close to 60 % of GDP. The IMF expects the public sector debt ratio to grow further in coming years.