Urban Liability Management and Financial Risks

In this paper, we study the reasons and forms for liability management of Chinese cities in the context of competition for growth. The author maintains that city officials are motivated to liability management because of the current financial system and incentives for promotion. The expansion of urban liabilities easily leads to financial risks and impact regional stability including the healthy development of macro economy. Therefore, governments should control the debt size and structure, establish and improve the mechanism for debt repayment, as well as the spending structure, which is the key to deal with the financial risks.