
Contents
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From Fiscal Allocation to Bank Loans From Fiscal Allocation to Bank Loans
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The CDB’s Lending Mechanism: A Hybrid Practice The CDB’s Lending Mechanism: A Hybrid Practice
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Nurturing a Nationwide Market of Infrastructure Finance Nurturing a Nationwide Market of Infrastructure Finance
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A Debt-Generated Virtuous Circle? A Debt-Generated Virtuous Circle?
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Reregulating and Refinancing Local Government Debts Reregulating and Refinancing Local Government Debts
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Financialization for State Purposes Financialization for State Purposes
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2 Debt for Growth? The Domestic Origin of the Chinese Pathway
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Published:June 2024
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Abstract
This chapter discusses how the China Development Bank (CDB) has nurtured a domestic infrastructure-financing market against the backdrop of China's public finance reforms when the Chinese government lacked sufficient tax revenue to finance projects vital for economic growth. The CDB assisted subnational governments in creating financial vehicles, collateralized their lands and fiscal revenues, empowered them to borrow large quantities of loans from policy banks as well as other financial agencies, and allowed them to capitalize infrastructure and industrial projects in their respective municipalities and provinces. Replicating this means of finance nationwide starting in the late 1990s, the CDB turned subnational governments into market borrowers, transformed China's major means of public finance from direct government spending to state-backed project financing, and facilitated China's rapid urban and industrial development. In this process, the state has withdrawn from a direct role in allocating fiscal revenue, instead leveraging state assets and revenues and employing financial instruments to achieve public goals. However, the financialization of the state has incentivized subnational governments to spend more than their fiscal revenue allowed them to, thereby driving up debt volumes. To resolve debt issues, the central government has again adopted a market-based approach, conducting succeeding rounds of reregulation and refinancing for local government financial vehicles instead of bailing them out with tax revenue.
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