China’s local governments: from engine of industrial policy to fiscal strain

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"In 2021, China’s local governments raised 8.7 trillion renminbi from land sales (about €1.17 trillion in 2021 values).

By 2025 that figure had fallen to 4.15 trillion renminbi, and in the first nine months of 2026 it dropped by a further 28% year-on-year.

Few economies could absorb such a shock without declaring a crisis, but China has avoided this by slashing local government expenditure: leaving contractors unpaid, reducing civil servant bonuses and cutting public sector spending.

 

This is a problem because local governments have been the unsung engine of China’s economic model in the last two decades. They are responsible for the bulk of public spending, from social services to infrastructure. They have also been the main implementors of Beijing’s industrial policy, providing cheap land for electric vehicle and battery plants, offering tax rebates and subsidised credit, and investing in semiconductor start-ups. ..."

ZhōngHuá Mundus | China’s local governments: from engine of industrial policy to fiscal strain