Bankruptcy prescription from apex bank

A Chinese central bank official said China should allow local governments to go bankrupt to help rein in regional authorities’ excessive borrowing. 

A case like the bankruptcy of Detroit would convince investors that the central government is really determined to dispel beliefs of an implicit guarantee for regional authorities, Xu Zhong, head of research bureau at the People’s Bank of China, wrote in an article in the China Business News Monday. 

Just a couple of days ago, China’s finance ministry pledged to break the “illusion” that Beijing would bail out local governments’ hidden debt. Their calls for limiting local borrowings are in line with central government’s financial policy for 2018. 

President Xi Jinping said earlier this month that a priority for next year is to “effectively” control leverage and prevent major risks.