China’s local governments are once again reviewing aggregate debt levels, this time including “implicit debts” of related state-owned companies and financing platforms. As a result, China should see a less expansionary fiscal impulse in 2018. Local government bond issuance may rise relative to 2017 levels, but overall pressure to reduce debt over a five-year horizon suggests tighter regulation on local government borrowing, weaker infrastructure spending activities, and more incentives to sell off local government assets.
