State de-financialisation through incorporating local government bonds in the budgetary process in China

Abstract

In China, state-led financialisation through local government financing platforms resulted in a surge in local government debt. To manage financial risk, the central state introduced local government bonds (LGBs) to replace the platforms as the main financing source for infrastructure investment. The issuance of LGBs is subject to a budgetary process. We argue that LGBs mark a turn to state de-financialisation, as the local state’s financial logic of maximising value extraction from the built environment is restricted by budgetary control. Through developing a database of LGB issuance in over 400 prefectural cities, this article reveals that local indebtedness determines the geographies of bond issuance, confirming the effect of the central state’s objective of restricting local government debt. The dynamics of state-led financialisation change from the inter-jurisdictional competition in infrastructure investment among local states through local government financing platforms to a hierarchical control of LGB issuance led by the central state using the budget. Our findings show that financial expansion may mean state de-financialisation and fiscal resources are not only used to promote state-led financialisation but also to enable state de-financialisation.

Actually existing state entrepreneurialism: From conceptualization to materialization

“…As an alternative, local government bonds (LGBs) were introduced by the central government to finance municipal and provincial projects. With a quota set annually by the Ministry of Finance, LGBs were issued by the provincial government based on a careful selection of applications from municipalities (Li et al, 2022b(Li et al, , 2023. In this vein, financialization is operated through a multi-scalar structure of state control, undergoing strict surveillance and screening by the central and provincial governments.…”

Building state centrality through state selective financialization: Reconfiguring the land reserve system in China

“…Because of financial expansion from 2008 to 2015, the local debt issue has been looming. Coping with the local debt issue, the central state has enacted a series of re-regulations and developed local government bonds (LGBs) since 2014 (Li et al, 2023a). This research is situated in the context of regulating financialization and focuses on the top-down reconfiguration of the land reserve system since 2016.…”