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Subnational Public Debt in China and Germany: A Comparative Perspective

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Fiscal Underpinnings for Sustainable Development in China

Abstract

Subnational public debt poses problems, including both China and Germany. In context, the total public debt amounted to 54% of GDP in China in 2012 and 74% in Germany in 2015. However, total general government debt in Japan was 274%, and 198% in Greece and 104% in USA.

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Notes

  1. 1.

    See Bundesministerium der Finanzen (2016): Monatsbericht January 2016. (http://www.bundesfinanzministerium.de/Content/DE/Monatsberichte/2016/01/Inhalte/Kapitel-5-Statistiken/5-1-16-staatsschuldenquoten.html).

  2. 2.

    See OECD (2015): OECD Economic Surveys China 2015, pp. 19.

  3. 3.

    Chinese National Audit Office (2013): National Auditing Report on Local debt.

  4. 4.

    See Henneke (2013): Gefährdung kommunaler Selbstbestimmung in Deutschland, p. 825.

  5. 5.

    The two lowest levels usually are combined to the fifth and lowest level of government, so that in total the Chinese government is in total five-tiered. The actual vertical administrative reform aims at reducing the number of tiers to three: central government, provinces and counties. See Division for Public Administration and Development Management (DPADM) Department of Economic and Social Affairs (DESA) United Nations (2006): China, Public Administration County Profile, New York 2006. (http://unpan1.un.org/intradoc/groups/public/documents/un/unpan023305.pdf).

  6. 6.

    See Wu (2015): An Introduction to Chinese Local Government Debt; MIT Center of Financing and Policy, October 2015. (http://cfpweb.mit.edu/wp-content/uploads/2013/08/Policy-Report-of-Chinese-Local-Government-Debt-final.pdf; download 12-2-2016).

  7. 7.

    See OECD (2015): OECD Economic Surveys China 2015, pp. 22.

  8. 8.

    The degree and the conditions of liability diverge according to the legal status of the enterprises, but in fact the governmental guarantees debt service and redemptions.

  9. 9.

    See Deutsche Bundesbank (2016): Monatsbericht 1/2016, p. 64*.

  10. 10.

    New public management procedures have decentralized budgetary competences to the operating departments. In many cities, the Finance Departments do not know how many bills have arrived at the operational units, which organize their ‘own’ payment of invoices. Therefore, the volume of hidden debt by through arrears is not known with any certainty.

  11. 11.

    See Federal Ministry of Economic Affairs and Energy (2015): Increasing Investment in Germany, Report of the Expert Commission on Behalf of the Federal Minister of Economic Affairs and Energy, Sigmar Gabriel. (http://www.bmwi.de/BMWi/Redaktion/PDF/I/investitionskongress-report-gesamtbericht-englisch,property=pdf,bereich=bmwi2012,sprache=de,rwb=true.pdf; download 18.2.2016).

  12. 12.

    See Li, Yang, Xiaojing Zhang, Xin Chang, Duoduo Tang, and Cheng Li. 2012a. “China’s Sovereign Balance Sheet and its Risk Assessment (I).” Economic Research Journal (Chinese) 47 (6), pp. 4–19; and Li, Yang, Xiaojing Zhang, Xin Chang, Duoduo Tang, and Cheng Li. 2012b. “China’s Sovereign Balance Sheet and its Risk Assessment (II).” Economic Research Journal (Chinese) 47 (7), pp. 4–21.

  13. 13.

    Jia et al. (2010): The risks and outways for local debt in China.

  14. 14.

    Shen (2009): Vertical Management in the background of authority decentralization: model and suggestion.

  15. 15.

    Chinese National Audit Office (2012): National Auditing Report on financial sources of 54 cities.

  16. 16.

    Article 28 of China’s Budget Law, which was promulgated in 1994, stipulates (1) that “the local budgets at various levels shall be compiled according to the principles of keeping expenditures within the limits of revenues and maintaining a balance between revenues and expenditures, and shall not contain deficit” and (2) that “the local governments may not issue local government bonds, except as otherwise prescribed by laws or the State Council”. Article No. 19 (2010) of the State Council stipulates (1) LGFPs with delinquent accounts, or debts that were formed by way of direct borrowing or debt guaranteed by a third-party guarantor will be under review, (2) LGFPs should stop financing public projects which rely on fiscal revenue to pay off any debts incurred, (3) local governments are prohibited from providing any guarantees.

  17. 17.

    Article 35 of revised Budget Law (2014) stipulates, provincial governments are allowed to issue bonds within a quota set by the State Council, which should be approved by the NPC or its standing committee. Capital raised through bond issuance is purposed for public service-related expenditure and not for operational spending. No. 43 (2014) of the State Council includes seven areas: establishing a transparent budget system; improving the government budget system; moving from an annual budget system to a multiyear budget balance system; improving the fiscal transfer system; strengthening budget execution management; strengthening local government debt management system; and regulating tax concession policies. Yet the key lacuna that affects the credibility of local governments in meeting future debt obligations.

  18. 18.

    See Zheng (2016): Debt ceiling will check borrowing. (http://topic.chinadaily.com.cn/index/cache/collection/cbsweb/source/China+Daily/title/16+trillion+yuan+debt+ceiling+set?aid=21742972).

  19. 19.

    See Kommission für die Finanzreform (1966): Gutachten über die Finanzreform in der Bundesrepublik Deutschland.

  20. 20.

    See Gesetz zur Gewährung von Konsolidierungshilfen (Konsolidierungshilfengesetz - KonsHilfG) August 10th 2009 (BGBl. I S. 2702, 2705).

  21. 21.

    See Weber and Beck (2013): Kommunale Entschuldungsprogramme der Bundesländer. Specifically Kommunaler Entschuldungsfonds in Rheinland-Pfalz (see Rätz (2011): kommunale Entschuldungsfonds Rheinland-Pfalz), Stärkungspakt in NRW (see Gesetz zur Unterstützung der kommunalen Haushaltskonsolidierung im Rahmen des Stärkungspakts Stadtfinanzen (Stärkungspaktgesetz) December 9th 2011 (GV. NRW. 2011 S. 662), Kommunaler Schutzschirm in Hessen (see der Finanzen (2014): Wege aus der Verschuldungsfalle. Der Kommunale Schutzschirm in Hessen—Zwischenbilanz zu einem Erfolgsmodell), STARK II in Sachsen-Anhalt (see Investitionsbank Sachsen-Anhalt: Sachsen-Anhalt STARK II (http://www.ib-sachsen-anhalt.de/oeffentliche-kunden/investieren-ausgleichen/sachsen-anhalt-stark-ii.html 24.02.2016), Zukunftsvertrag in Niedersachsen (see Niedersächsisches Gesetz über den Finanzausgleich (NFAG) September 14th 2007 (Nds. GVBl. 2007, 466) § 14 a Zins- und Tilgungshilfen zur Zukunftssicherung von Kommunen), Konsolidierungsfonds in Schleswig-Holstein, Kommunaler Konsolidierungsfonds in Mecklenburg-Vorpommern, Kommunaler Entlastungsfonds in Saarland (Gesetz über das Sondervermögen “Kommunaler Entlastungsfonds” October 13th 2015 (Amtsbl. I S. 852).

  22. 22.

    See China Balance Sheet 2013 released by the Chinese Academy of Social Sciences (CASS).

  23. 23.

    See Federal Ministry of Economic Affairs and Energy (2015): Increasing Investment in Germany, Report of the Expert Commission on Behalf of the Federal Minister of Economic Affairs and Energy, Sigmar Gabriel. (http://www.bmwi.de/BMWi/Redaktion/PDF/I/investitionskongress-report-gesamtbericht-englisch,property=pdf,bereich=bmwi2012,sprache=de,rwb=true.pdf; download 18.2.2016).

  24. 24.

    See e.g. N.N. (2014): Geisel plant Firma für Schul-Investitionen. (http://www.rp-online.de/nrw/staedte/duesseldorf/thomas-geisel-plant-firma-fuer-schul-investitionen-in-duesseldorf-aid-1.4402099).

  25. 25.

    N.N. (2016): 16 trillion yuan debt ceiling set. (http://en.people.cn/n/2015/0831/c90000-8943582.html; download 18.2.2016).

  26. 26.

    Ibid.

  27. 27.

    N.N. (2015b): Local government debt out of control in China. (https://chiecon.wordpress.com/2015/12/08/local-government-debt-out-of-control-in-china/; download 18.2.2016).

  28. 28.

    See the following decisions of the German Constitutional Court: BVerfGE 72, p. 330; BVerfGE 86, p. 148; BVerfGE 101, p. 158; BVerfGE 116, p. 327.

  29. 29.

    See BVerfG, Urteil des Zweiten Senats vom 19. Oktober 2006 - 2 BvF 3/03 - Rn. (1-256), (http://www.bverfg.de/e/fs20061019_2bvf000303.html 24.02.2016).

  30. 30.

    See the details in Kemmler (2009): Schuldenbremse und Benchmarking im Bundesstaat, p. 552.

  31. 31.

    See N.N. (2015a): China’s local government debt—Defusing a bomb. (http://www.economist.com/blogs/freeexchange/2015/03/china-s-local-government-debt; download 18.2.2016).

  32. 32.

    See Press release of Helaba February 19th 2015a: https://www.helaba.de/de/DieHelaba/Presse/PresseInformationen/2015/20150219-NRW-Staedteanleihe2.html; Press release of Helaba June 10th 2015b: https://www.helaba.de/de/DieHelaba/Presse/PresseInformationen/2015/20150610-NRW-Staedteanleihe3.html.

  33. 33.

    OECD (2015): OECD Economic Surveys China 2015, pp. 22.

  34. 34.

    See Schlüter (2016): NRW: „Sanierungspläne sind Makulatur“, in: Der Neue Kämmerer v 4.2.2016. (http://www.derneuekaemmerer.de/nachrichten/haushalt/nrw-sanierungsplaene-sind-makulatur-30831/?utm_source=CleverReach+GmbH+&utm_medium=email&utm_campaign=04-02-2016+DNK+Newsletter+%28KW+05%2F2016%29&utm_content=Mailing_9867724; download 15.2.2016).

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Authors and Affiliations

  1. Speyer University, Speyer, Germany

    Gisela Färber

  2. Tianjin, China

    Zhijie Wang

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  1. Gisela Färber
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  2. Zhijie Wang
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Correspondence to Gisela Färber .

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Editors and Affiliations

  1. University of Bonn, Bonn, Germany

    Ehtisham Ahmad

  2. Center for Chinese Public Administration Research, Sun Yat-Sen University, Guangzhou, Guangdong, China

    Meili Niu

  3. Department of Economics, London School of Economics, London, United Kingdom

    Kezhou Xiao

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Färber, G., Wang, Z. (2018). Subnational Public Debt in China and Germany: A Comparative Perspective. In: Ahmad, E., Niu, M., Xiao, K. (eds) Fiscal Underpinnings for Sustainable Development in China. Springer, Singapore. https://doi.org/10.1007/978-981-10-6286-5_5

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  • DOI: https://doi.org/10.1007/978-981-10-6286-5_5

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