Chao Deng at the WSJ has an excellent look at the practical and social outcomes of an ongoing debt crisis in Leiyang, Hunan.
The latest move to save on government expenditures is angering some parents:
"The city’s plans to deal with overcrowded public-school classrooms by sending students to more expensive, often inferior private schools drove hundreds of parents and others to protest."
"On Saturday, some threw bottles, bricks and firecrackers at local officials and police."
"Officials moved on Monday to defuse tensions, promising the parents that tuition would be capped at the public-school level."
"Even so, the debt problems—and public dissatisfaction—aren’t expected to dissipate soon in Leiyang, or in any of the other legions of local governments in financial straits."
Some context: We highlighted the financial straits in Leiyang, and in broader Hunan, this summer (see June 12 Tip Sheet). The area is a test case for how local governments will deal with their debt problems.
Get smart: As central authorities increasingly hold local governments’ fiscal feet to the fire, any belt tightening will have real world impacts. If authorities stick to the program, this will be a painful process.