China: The Struggle to Control Local-Government Spending

Since the 1980s, China's central government has struggled to manage local government finances. The problem has been exacerbated by the creation of local investment firms that borrow from banks to lend money to local governments. Beijing has allowed the system to operate knowing that it boosts development in the provinces and is helping them endure the economic downturn. But after a surge in spending during the recession, Beijing has grown more fearful about local governments' off-budget debt and is moving to reassert control.