The Political Genesis of Local Government Debt in China, with Jean Oi

Harvard Fairbank Center for Chinese Studies

Speaker: Jean Oi, William Haas Professor of Chinese Politics, Department of Political Science; Director, Stanford China Program, Stanford University China’s rapidly growing local government debt (LGD) is now branded a “grey rhino,” a known threat that has received little attention. Why did Beijing let LGD get so out of hand? What are the sources of LGD? There is evidence to suggest that no matter how honest and law-abiding local cadres might be, localities are likely to have local government debt. Prof. Oi will argue that LGD stems from a grand bargain between the center and the localities that were made to secure support for the 1994 fiscals reforms. This series of policy decisions institutionalized backdoor financing, creating a “win-win” solution that recentralized tax revenues to Beijing while countering the downsides of fiscal recentralization for the localities. The cost, however, was that China’s economic growth model was increasingly undergirded by mounting LGD, with little transparency and control by the center. Jean C. Oi is the William Haas Professor on Chinese Politics in the department of political science and a Senior Fellow of the Freeman Spogli Institute for International Studies at Stanford University. She is the founding director of the Stanford China Program at the Walter H. Shorenstein Asia-Pacific Research Center. Professor Oi also is the founding Lee Shau Kee Director of the Stanford Center at Peking University. A PhD in political science from the University of Michigan, Oi first taught at Lehigh University and later in the department of government at Harvard University before joining the Stanford faculty in 1997. Her work focuses on comparative politics, with special expertise on China’s political economy and institutions in the process of reform. Fiscal politics and central-local relations in China are at the center of Oi’s research. Recent work delves inside local-level institutions to sheds new light on China’s authoritarian resilience by exploring how county governments through adaptive governance have been able to cope as the economy has grown exponentially and demands and needs from an increasingly complex society put more strains on resources and the political system. Most recently, she co-edited a volume that highlights the challenges China now faces after reaping record-breaking growth in the last 40 years by only tweaking the institutions that it inherited from the Mao period. Current leaders continue to kick the can down the road rather than tackle the most politically difficult part of the reform process. Instead, leaders seem to be “going back to the future,” relying on a playbook not seen since the Mao period. Current projects focus on growing local government debt in China and why there is so much when the law prohibits localities from borrowing and budget deficits. Moving beyond her earlier work, Oi also has begun a project to empirically assess the impact of China’s Belt and Road Initiative (BRI). Oi takes an institutional and micro-level approach to identify the key players and their interests.