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Intense focus on debt

By Chen Jia | China Daily | Updated: 2013-07-05 07:21

On June 26, a State Council meeting hosted by Premier Li Keqiang issued a statement on urban renewal.

"That is definitely helpful to support growth: however, the downside trend is difficult to reverse."

At the meeting, Li also commented on overall economic conditions and characterized the policy outlook as "stable".

Global financial institutions downgraded second-quarter GDP growth estimates from about 8 percent to an average of 7.5 percent, which would be the slowest since the third quarter in 2012.

"We are heading into hard times," Zhang said. "The local governments, which have been the pillars for infrastructure investment, will face more difficulties in the second half.

"Eventually, local governments will have to liquidate some of their assets, such as highways, and find more revenue sources. Property tax should be extended to more cities quickly, and the central government should take more responsibility in investment."

He said that local government defaults may occur after the second quarter, especially in the central and westsern regions.

"The deleveraging process will be painful," Zhang said. "The government can bear the short-term pain in exchange for sustainable development in the long run."

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