The grand bargain led to China's continued growth. The drawback, however, was that this economic growth has been accompanied by the accumulation of local government debt with little transparency and central control. When the global financial crisis impacted growth rates, local deficits and debts spiked. In response, Beijing began to shut down backdoor financing and opened front-door options that were transparent and under the control of national authorities — but with limited success.

Reining in Local Government Financing Vehicles

The researchers posit that "only beginning in 2017 did the Communist Party’s own Central Leading Group on Finance and Economic Affairs and various government-related media begin to label local government debt as a threat to the economy, raising the alarm bells by calling it a 'gray rhino,' a likely high-impact threat that was being ignored." Why, then, didn’t Beijing quickly put a stop to local government debt? Why did central authorities wait until 2015 to put measures in place, and wait even longer to identify local government debt as an economic threat?

Oi and her colleagues explain that studies of policy implementation and regulation in China tell us that the national government faces information asymmetry problems, where localities can subvert upper-level directives because the center has imperfect knowledge of what local agents are doing. Such subversion is most likely when local interests are not aligned with Beijing’s. Now, in the wake of the COVID-19 pandemic, the question is whether the pendulum will swing back toward more tolerance of local debt for the sake of economic growth.

All indications, the authors agree, suggest that during COVID-19 and its aftermath, especially as China also has vowed to win and maintain the fruits of the battle against poverty “at all costs,” localities are going to need extra resources, borrowed or not. The center’s pendulum, at least for now, is swinging further away from fiscal discipline toward local incentives and growth.

Evading Institutional Reforms

Oi and her colleagues contend that the expansion of local government debt is a feature of China's developmental model, which aims to "circumvent rather than tackle difficult institutional reform, kicking the can down the road, opting for an easier fix to avoid the potentially high political costs.” 

The authors' primary takeaway is therefore that local government debt in China is not a local problem. Similar to other developing nations that depend upon local partners, China faces a dual-commitment problem: "growing the local economy without debt requires the central state to simultaneously commit to respecting its local agents’ access to and control over the fruits of local development (of which local fiscal resources are the most crucial part), while exercising credible fiscal discipline over precisely the same set of local agents that the center seeks to incentivize.”

For nearly three decades, Chinese central authorities have relied on the grand bargain to boost the nation's economic might. Oi and her colleagues reveal that the problem of local government debt reverberates to the highest echelons of the Chinese state decision makers and continues to present strategic challenges for the economic juggernaut.  

On October 6, 2021, the APARC China Program hosted the panel program, "Engaging China: Fifty Years of Sino-American Relations." In honor of her recently released book of the same title, Director of the Grassroots China Initiative Anne Thurston was joined by contributors Mary Bullock, President Emerita of Agnes Scott College; Thomas Fingar, Shorenstein APARC Fellow; and David M. Lampton, Professor Emeritus at Johns Hopkins School of Advanced International Studies (SAIS). Thomas Fingar also moderated the panel.

Recent years have seen the U.S.-China relationship rapidly deteriorate. Engaging China brings together leading China specialists—ranging from academics to NGO leaders to former government officials—to analyze the past, present, and future of U.S.-China relations.

During their panel, Bullock, Fingar, Lampton, and Thurston reflected upon the complex and multifaceted nature of American engagement with China since the waning days of Mao’s rule. What initially motivated U.S.’ rapprochement with China? Until recent years, what logic and processes have underpinned the U.S. foreign policy posture towards China? What were the gains and the missteps made during five decades of America’s engagement policy toward China? What is the significance of our rapidly deteriorating bilateral relations today? Watch now: 

For more information about Engaging China or to purchase a copy, please click here.

My summer internship experience at the Asia Society Policy Institute (ASPI) was remote due to the pandemic. It was nonetheless a memorable experience as I got to explore cybersecurity issues around Southeast Asia. ASPI is a think-tank under the umbrella of the Asia Society family, which aims to explain the diversity of Asia to the United States and the complexity of the United States to Asia. It heightens understanding between the two regions and tackles major policy challenges confronting the Asia-Pacific in security, prosperity, and sustainability by providing solution-oriented recommendations and ideas for such challenges.

At Asia Society Policy Institute (ASPI), I delved into policies and developments around the data privacy issue in Malaysia, Indonesia, Vietnam, Thailand, and Singapore. I learned how these countries bring up policies and collaborate bilaterally, regionally, and globally to tackle problems around cybersecurity. My summer internship experience also enriched my knowledge and understanding of the world.

Working at ASPI

The internship started in June 2021, around the end of the spring quarter, and continued through the end of summer. There were a total of four interns in the Washington D.C. office. I mainly worked with a small team of three - Elina, my supervisor, Chris, my co-intern, and I - which focused on cybersecurity issues.

My supervisor, Elina Noor, an inspiring expert in cyberspace, especially in the Southeast Asia region, led the team with great insights and leadership. Along with my co-intern, Chris, we spent the entire three months working on a project that studies Ethical Artificial Intelligence (AI) and Data for Inclusive Development in Southeast Asia. The project itself is expected to continue for a year, and we were in the early stages of the project. 

As a security research intern, I collected data and assisted the research. Additionally, I focused on building-up fundamental understanding of the project - determining the stages of development each country is in, how they respond to the global trend and issues, and what criteria need to be included in analyzing the different characteristics of each country, considering both the local context and the global trend. In the next nine months, the project will survey countries’ positions on these issues, assess the importance and impact of the topic, and highlight the significance of engaging in international developments. I am excited for the final product to come forth, a collaborative work of all people involved in this project.

Other responsibilities also came along the way. I had the opportunity to find the correlation between the South China Sea dispute and cyber incidents between the countries claiming sovereignty over the region. These incidents are ambiguous to identify, and the attribution is not always clear. It was also challenging to make a data set from scratch as it was a whole new experience. However, I managed to conclude that cyber incidents spiked around the time of the major disputes around the South China Sea. No secret that the Global Economy class taught by Professor Aturupane from Fall 2020-21 helped me make sense of the data set and read graphs!

The interns in the New York and Washington D.C. office took turns doing daily press scans, following up with news from the Northeast to the Middle East. It was amazing to learn how Asia, as one big continent, held such a diverse set of news and events occurring each day. I also accumulated lists of people in congress, embassies, and the government to share the op-eds from ASPI. Most of these administrative works were done as a team effort, and I met a larger ASPI family through the experience.

Ending My Internship

Working at ASPI was a rewarding way to spend my summer. I owe special thanks to Elina and Chris, who were incredibly supportive and made me feel like I was making a significant contribution to the institution. I was also rewarded with knowledge and insights into new topics in Asia and its relations with the world, mainly focusing on the U.S. It provided great insight into the developments of cybersecurity issues and data privacy around Southeast Asian countries. It was a fantastic opportunity to apply what I learned at Stanford to real-world policy problems. I thoroughly enjoyed my internship this summer and feel ready to embark on new challenges that will come forth in my career path.

The Asia-Pacific Economic Cooperation (APEC) is a regional economic forum with 21 member economies, including the US, China, and Russia, headquartered in Singapore. As a summer graduate intern at APEC, I worked closely with APEC’s policy unit that oversees and conducts policy research and analysis for publications and reports, which are used as key discussion agendas in ministerial level discussions and conferences. The Policy Support Unit (PSU)’s core areas of work are 1) trade and investment liberalization and facilitation, 2) structural reform, 3) connectivity including supply chain connectivity and global supply chains, 4) economic and financial analysis, and 5) sustainable economic development. During my summer internship, I was able to gain direct experience with almost all of these core areas through conducting quantitative and qualitative research.

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The PSU has been working on a publication that analyzed the impacts of travel restrictions during the pandemic. The report provided evidence and policy recommendations for APEC economies to resume cross-border travel in a safe and equitable way. I was tasked to draft two sections of the report, including a literature review of various multilateral organizations’ initiatives on safe re-opening, and an analysis of the disproportionate impacts of travel restrictions on vulnerable population, especially women. Women were not only experiencing economic impacts from border closures, such as loss of jobs and business closures, but women seeking abortion procedures in countries with restrictive regulations faced significant challenges when cross-border travel was limited to “essential workers.” Such challenges were even more pronounced for lower-income women or women with disabilities who may not be able to access services through other means domestically. 

I also worked on drafting APEC’s flagship publication, APEC in Charts 2021, which resides within APEC’s fourth core area of work, economic and financial analysis. APEC in Charts is an annual publication that provides a visual overview of the region’s economic, trade and investment performance. Using data from international organizations like the World Bank, International Monetary Fund, and the United Nations, I calculated aggregate statistics for the APEC region on the following indicators: trend in trade, tariff liberalization indicators such as free trade agreements, trend in FDI inflows and outflows, COVID-19 vaccination status, and various sustainability indicators such as household food waste and greenhouse gas emissions trends.

Since APEC includes Taiwan and Hong Kong, both of which did not have disaggregated data, the most challenging part of this task was to locate and calculate the information using limited data. While data disaggregation was challenging, I was thankful for all those nights that I stayed up in the first quarter to complete data aggregation for economic analysis assignments for the Global Economy course, INTLPOL 302, which built a foundation for key skills required at APEC.

I also immersed myself in the topic of climate change over the summer. Policy actions on climate change became one of the center of APEC’s agendas to build economic resilience post-COVID. I drafted a section on climate change in APEC’s Regional Trends Analysis (ARTA) report by conducting quantitative and qualitative research on green indicators. Calculating carbon emissions was one challenge, but comparing how much each economy had pledged to reduce emissions and what it would actually take to keep global warming below 2°C was another challenge. 

Climate change was not a topic I was very familiar with from a research standpoint, but I took the opportunity to self-educate through reading various literature, including the most recent publication from the Intergovernmental Panel on Climate Change (IPCC). It was striking that more than 60% of global greenhouse gases were generated by APEC economies. Unless APEC as a region curbs cumulative emissions, the expected repercussions are disastrous. Again, the most vulnerable – including women and girls, migrants, those in poverty, mountain communities and people in urban slums – will experience more severe consequences, and the repercussions are even more pronounced for those in developing nations.

This 11-week internship experience at APEC over the summer was a rewarding one that helped me understand the way multilateral organizations work. I was motivated by working with an organization responsible for shaping economic policies through cooperation to build resilience in the post-COVID world. Plus, I was able to tone up key techniques learned from MIP’s core courses such as STATA and advanced excel skills. Although it was a remote internship, I benefited from learning from my fellow interns and co-researchers on their broad range of expertise and experience. I strongly recommend future MIP students work with APEC over the summer as policy interns!