China Herald: "Brute force" to get local governments in line

The reform plans from president Xi Jinping asks for a notable reshuffle of power relations in China, notably from the powerful local governments to the central government. It takes "brute force", says economist Arthur Kroeber in Bloomberg to reorganize local finances.

Bloomberg:

Tightening control over local finances and allowing new channels for funding would limit the risk of a debt crisis hobbling the world’s second-biggest economy, while corruption arrests since Xi became party chief may signal that officials ignore directives at their peril. The scale of regional debt woes is set to be shown in an audit that the Finance Ministry said was due last month although it has yet to be released.

“It requires a lot of political brute force and it’s something you can only achieve if you are extremely vigorous,” said Arthur Kroeber, Beijing-based managing director of economic research firm GaveKal Dragonomics, referring to efforts to ensure local governments toe the line. “The localities have so much power and their incentives are so non-aligned with the party’s grand objectives that it’s a real problem.”

The anti-corruption campaign started by Xi when he took over as party chief last year may be a way of telling officials and state-company bosses, “Look, this is the way it’s going to be, and if you don’t like it, we have a lot of space in the jails for you,” said Kroeber, who is also a fellow at the Brookings-Tsinghua Center for Public Policy in Beijing.

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