State-led Growth and Domestic Debts

  • Yazhuo Zheng
  • Kent Deng
Part of the Palgrave Studies in Economic History book series (PEHS)


This chapter deals with China’s trap in a mounting debt burden, especially why and how government debts grow so fast. Beijing’s single-minded policy of pushing for GDP growth has created incentives for bureaucrats and cadres to initiate novel ways to generate more and more GDP for personal deeds. Projects best suited for government are land-intensive, capital-intensive but relatively low-tech city-building ones. Local governments then need money. They cash coffers from land leases and hoard newly nationalised land a collateral whereby money loans to be made from state-owned banks. As their investment returns are too low to pay off debts, many local governments face bankruptcy.


Soft-budget constraint Domestic debts Land nationalisation Land lease fee State-owned banks Tax revenue Debt-reversion policy Minsky Moment 


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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Yazhuo Zheng
    • 1
  • Kent Deng
    • 2
  1. 1.Beijing Enlightenment Institute for Economic and Social ResearchBeijingChina
  2. 2.London School of EconomicsLondonUK

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