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A Research on the Debt Sustainability of China’s Major City Governments in Post-Land Finance Era

Department of Accounting, School of Business Administration, Northeastern University, Shenyang 110167, China
Department of Management, School of Economics and Management, University of Bologna, 47121 Forlì Campus, Italy
Author to whom correspondence should be addressed.
Sustainability 2018, 10(5), 1606;
Received: 13 April 2018 / Revised: 11 May 2018 / Accepted: 15 May 2018 / Published: 17 May 2018
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
PDF [971 KB, uploaded 21 May 2018]


Land finance, i.e., a city government’s revenue, depends deeply on the revenue from transferring multiannual land use rights and is a phenomenon unique to China. However, due to increasingly tense land supply, increasingly prominent social conflicts, and the slowdown of urbanization in China, the country is entering what we may label the “post-land finance” era. Therefore, revenue from land finance is decreasing, which threatens the sustainability of Chinese city governments’ debt, especially in major cities. This paper tests the long-term sustainability of major Chinese city governments’ debt. Different from intuition, the empirical results show that the debt of these major city governments is still sustainable at the macro level. This paper also constructs a quadratic function model to predict the critical value of the local government debt. Our results suggest that despite the fact that debt is still sustainable, critical value may be reached quickly, as debt is growing rapidly. There is thus a need for local fiscal reform that divides financial power and authority between the local governments and the central government more reasonable and clearly, improves the current assessment mechanism of local governments’ officials, and speeds up the legislative work on property taxes. View Full-Text
Keywords: debt sustainability; city governments; China; land finance debt sustainability; city governments; China; land finance

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Tu, L.; Padovani, E. A Research on the Debt Sustainability of China’s Major City Governments in Post-Land Finance Era. Sustainability 2018, 10, 1606.

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