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<p>The rapid rise of local government debt risk (LGDR) in China has attracted widespread attention. Although the central government issued 10 trillion yuan in 2024 to replace local debt, such interventions mainly provide short-term relief, leaving long-term mitigation mechanisms underexplored. The experience of Hefei, a rapidly rising latecomer city, suggests that investing in high-tech industries that embody complex knowledge can increase economic complexity, thereby generating a sustainable pathway to debt mitigation. Building on this experience, we investigate whether the accumulation of complex regional knowledge, reflected in higher economic complexity, promotes long-term debt sustainability. Using panel data for 31 Chinese provinces from 2004 to 2022, we find that higher economic complexity significantly reduces LGDR, with the province’s marketization level acting as a positive moderator. To our knowledge, this is the first study linking economic complexity to LGDR mitigation, offering policy insights for improving fiscal resilience through regional knowledge upgrading.</p>

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From complexity to resilience: the role of regional knowledge in reducing China’s local government debt risk

  • 期刊论文

  • 发表日期：

    2026年3月21日

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  • Fengxia Hao,
  • Yuqin Wang,
  • Yong Li

摘要

The rapid rise of local government debt risk (LGDR) in China has attracted widespread attention. Although the central government issued 10 trillion yuan in 2024 to replace local debt, such interventions mainly provide short-term relief, leaving long-term mitigation mechanisms underexplored. The experience of Hefei, a rapidly rising latecomer city, suggests that investing in high-tech industries that embody complex knowledge can increase economic complexity, thereby generating a sustainable pathway to debt mitigation. Building on this experience, we investigate whether the accumulation of complex regional knowledge, reflected in higher economic complexity, promotes long-term debt sustainability. Using panel data for 31 Chinese provinces from 2004 to 2022, we find that higher economic complexity significantly reduces LGDR, with the province’s marketization level acting as a positive moderator. To our knowledge, this is the first study linking economic complexity to LGDR mitigation, offering policy insights for improving fiscal resilience through regional knowledge upgrading.