Zhang Ming: Issues of local government debt, the real estate industry and financial risk need to be resolved in unison
The following is a summary of Zhang Ming's remarks at the 51st Tsinghua University Forum on China and the World Economy held at Tsinghua University, Beijing, and broadcasted online on July 7, 2026. Zhang is Deputy Director and Researcher at the Institute of World Economics and Politics (IWEP) at the Chinese Academy of Social Sciences (CASS).
On July 7, 2026, the 51st Tsinghua University Forum of China and the World Economy, hosted by Tsinghua University's Academic Center for Chinese Economic Practice and Thinking (ACCEPT) in partnership with the university's School of Social Sciences, was broadcasted online under the theme of "China's 2026 Mid-Year Economic Update." Deputy Director and Researcher at the Institute of World Economics and Politics (IWEP) at the Chinese Academy of Social Sciences (CASS), Zhang Ming, delivered remarks and participated in roundtable discussions at the forum alongside other distinguished guests where he commented on the state of the Chinese economy.
Zhang Ming offered a systematic view on the issue of local government debt. First, in recent years, the central government has achieved a degree of success in controlling the accumulation of new hidden debt and promoting the implementation of debt swaps. A portion of local government debt servicing costs have decreased and maturities have meanwhile been extended, but local governments remain under a great deal of stress. Second, local governments have shown an unwillingness to permit defaults in the areas of platform credit or state-owned enterprise debt. Because once a credit crunch occurs, financing costs for the entire region will rise. Local governments can only continue to repay their existing high-interest debts, with large volumes of available resources now being utilized to pay down old debts. Third, local government debt is highly correlated with the overall state of the business environment. Some local governments' actions in terms of tax matters and law enforcement have been distorted, which is not simply a matter of policy preferences but rather a reluctant move under a scenario of fiscal constraints.
Zhang expressed that local government debt and the real estate sector are two sides of the same coin. After the real estate market adjustment, fiscal and financial dealings in the market for land came under pressure simultaneously, directly impacting local government revenue sources. On the one hand, in order to fundamentally ease the burden of local government debt, the real estate market needs to be stabilized after first reversing its declines, with market sentiment in first- and second-tier cities being most especially in need of stabilization. On the other hand, existing high-cost debt beyond a certain standard should be resolved through central government intervention. The central government's issuance of special government bonds to swap out a portion of historical debt is economically reasonable, since a large amount of local government debt was used in the past for infrastructure construction and long-term development projects.
