Systemic background of local indebtedness and investment overheating during the global crisis in China

Abstract

This paper focuses on the immediate economic and systemic reasons of steadily increasing local government indebtedness and investment overheating in China despite central efforts to contain them. These two phenomena emerged between 2008 and 2011 as a direct consequence of an external shock caused by the global crisis and the subsequent internal reaction in the form of intensified stimulating state intervention. New opportunities for resource distribution and investments through state intervention mobilized distribution priorities and politically rational economic behavior of actors, which are characteristic of party-state systems. Locations of mobilization were defined by the decentralized Chinese system specifics along the intertwined party-state structure. Systemic characteristics and the Chinese specifics together resulted in investment overheating on a national and local level, causing a steady growth of local indebtedness through large and state-owned enterprises and local governments. This process was further amplified by the characteristics of the transforming economy in China, as actors in the private sphere were mobilized by the increased input demands of those privileged by the systemic priorities of state intervention.