Could China Have Its Own Puerto Rico?

For the amount of work they’re expected to do, China’s regional governments are simply not paid enough.

- By Shuli Ren, Illustration by George Wylesol

For the amount of work they’re expected to do, China’s regional governments are simply not paid enough. As the economy slows and real estate enters a bear market, a financial collapse on the order of Puerto Rico’s is a real possibility.

The central government collects more than 8 trillion yuan ($1.3 trillion) from local tax offices every year, then redistributes most of it across the country. But the share going to local governments has declined since a major tax reform in 1994. In 2020 they got 55% of the total, down from 73% in 1993, before the changes were enacted. Meanwhile, the regional governments, which are responsible for most public services—such as building roads and providing clean drinking water—have been spending more: Their share of total government spending in China rose to 86%, from 73%, over the same period.