Local leaders as board of directors

Sometimes, the things that most people talk about, though important, end up being irrelevant in a few years. The current discussions in media circles about Shanghai's pilot Free Trade Zone appear headed in this direction, much like the pilot financial reforms in Wenzhou, or the new investment zones elsewhere in China.

Of course, in the meantime, there are also those who cannot stop weeping over their losses from yet another decline of the A-share stock market without realizing that it has done so several times since the beginning of the year. There are also those who lament the dwindling visitors to the Canton Fair, the shopping window for China's exports. But come on, we have been living in the Internet age for some time, haven't we?

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People cannot stop talking about the things that are the only game they know from the past, forgetting that they are actually living in a time of rapid change - which means, like it or not, the hottest game tomorrow will be different.

One thing to watch is China's new budget law. It has taken a whole decade for lawmakers to come up with an amendment to the almost 20-year-old law, which is out of tune with the realities of today's economy, considering that local governments are eager to take on increasing investment projects but don't have legitimate channels to raise capital on their own.

The existing budget law prohibits local governments from issuing bonds and raising debt. In a province with two dozen cities and 2 trillion yuan ($300 billion) in GDP, it would be unthinkable that local governments, at both provincial and city level, cannot finance their public projects directly through the financial market, although in reality many of them have raised a lot of debt (at least 1 trillion yuan and above) in various ways that are yet to be defined by law.

That makes the government system overly centralized and top-heavy. Local governments need to be more responsible for their financial affairs and for sponsoring development projects based on the needs of the local society.

The draft amendment allows local governments financial autonomy. If it were passed, it would be an unprecedented change in the nation's history.