Hello everyone, welcome to the News Five, today’s co-hosts are Jinshi, Qin Peng, Yuting, Lin Lan, and me (Fuyao). With our different perspectives colliding and diverse viewpoints, we will guide you into the rich world of news. Feel free to subscribe to and like our independent channel.
Today’s focus: Budget deficits in 30 administrative regions reach 5.7 trillion, the most severe deflation in 25 years! Economic leader of the Yangtze River Delta cools down; stability maintenance personnel in Fujian are owed wages; Shenzhen and Kunming metro lines suffer losses; numerous regions resort to drastic measures; even Sichuan is selling off assets due to financial shortages, prompting the resignation of a thousand executives in 27 days.
The economic minefield in China is about to explode, it’s not a matter of “if” but a matter of “when.”
According to the latest data from the Ministry of Finance of the Chinese Communist Party, in the first seven months of this year, out of the 31 provincial-level administrative regions in China, a staggering 30 regions have experienced fiscal deficits, with a total deficit of 5.7 trillion RMB, with only Shanghai being spared. Even the flagship project promoted by the Party, “Zhejiang,” is now facing financial difficulties.
With local governments running out of money, what can be done? The old tactic is to issue bonds and borrow money. Just in August, local governments across China issued a record 24 trillion yuan in local bonds, but can this still revive the economy as before?
Jinshi, compared to last year, Shanghai had the best fiscal self-sufficiency rate, followed by Zhejiang. However, Zhejiang has taken a significant step back this year, dropping from 2nd place to 7th nationwide. Zhejiang, known as the birthplace of the Party leader and the representative of the “Zhejiang model,” what has happened to it? Could this be a sign of things to come for the overall Chinese economy?
Yuting, it’s quite bizarre how local governments are facing financial difficulties in various ways.
Indeed, the anomalies are becoming more frequent. We know that the Chinese Communist Party tightly controls speech, often suspending accounts and groups. But now, even companies related to grid personnel are unable to pay their employees. The official response from Fujian, which was named in reports, has rare confirmation of the issue and promises to address the wage arrears gradually. In Yizhou District of Linyi, Shandong, grid personnel were directly dismissed. This clearly shows that local financial deficits have reached such an extent.
Moreover, in Kunming’s metro system, multiple responses have revealed that over 2,000 employees were owed wages and social insurance totaling over 200 million RMB. Earlier this year, there was another incident where sanitation workers in Xiayi County, Shangqiu City, Henan, went to the local finance bureau in February amidst heavy snow to demand their salaries, which is truly unbelievable.
What’s even more alarming is the severe economic recession leading to the decline of various industries, to the point that even state-owned enterprises can’t hold on. In Shenzhen, known as the most profitable metro company in China, experienced its first loss in ten years. Shenzhen Metro Group’s “net profit attributable to the parent” was over 10 billion in the past, but it has seen consecutive plunges. In the first half of this year, it officially entered into a deficit of 3.793 billion yuan. By the end of the first half of this year, Shenzhen Metro’s debt-to-asset ratio had soared to 56.57%.
Currently, various local governments are facing financial deficits, leading to salary reductions and staff cuts for civil servants. What’s more ludicrous is that the Chinese Communist Party, while promoting the “economic prosperity theory,” is now resorting to “drastic measures” by establishing “sell-the-wok, sell-the-iron” task forces. Several local governments have recently set up such teams following the central government’s policy at the end of last year aimed at reducing debts in 12 key provinces, urging local authorities to sell assets to address financial risks. The primary goal is to generate revenue for local governments regardless of the cost to citizens, in order to reduce local debts.
For example, in August this year, officials in Chengwu County, Shandong, threatened a medical technology company representative to meet their revenue targets, even boasting that “supporting one enterprise is beyond my ability, but destroying one is easy.” This arrogance is astonishing.
In some regions of China, local officials even demand that companies advance their tax payments, with a chemical plant owner in Anhui saying that if businesses refuse, officials make sure they have a hard time.
Guizhou went to the extreme of using “criminalization of debt,” where the government not only didn’t repay a private enterprise overdue project payment, worth over a hundred million, but also injured the creditor, leading to their arrest on charges of provocation and trouble-making.
Last year, Sichuan even sold the operation rights of the Leshan Giant Buddha for 1.7 billion yuan, facing criticism from netizens that not even the Buddha is spared.
In summary, various local governments within the Chinese Communist Party are facing severe financial deficits, resulting in drastic measures such as “sell-the-wok, sell-the-iron,” creating all kinds of excuses to exploit the people. This includes fining and raising taxes on private enterprises, arbitrary increases in utility bills for ordinary citizens, fines, and more, leading to a chaotic situation.
Lin Lan, local governments are vigorously issuing local bonds, in the past this method could stimulate the economy through investment in public infrastructure. Do you think this approach can still be effective now?
Qin Peng, the Chinese Communist Party has long believed in the saying, “domestic debts are not debts,” believing that as long as money is borrowed domestically, it can always be repaid through money printing. However, excessive money printing leads to inflation, making goods more expensive. Yet, at the same time, former central bank governor of China, Yi Gang, warned of deflationary pressures facing the Chinese economy. How did this happen? With so much money printed, where did it go?
Public Opinion: As local governments run out of funds, is it a good thing for the Chinese people or a bad thing?
It is definitely not a good thing. The fact that the Chinese Communist Party has resorted to “drastic measures” like “sell-the-wok, sell-the-iron” indicates that an economic crisis is imminent. Last year, the global investment bank Goldman Sachs estimated that the debt burden of Chinese local governments reached a staggering 94 trillion RMB. Statistics also show that about a third of major cities are having difficulty paying the interest on their debts, leading to endless incidents of wage arrears by local governments, affecting not only civil servants but private companies facing layoffs, wage cuts, and fines.
The Chinese Communist Party’s economic approach of “sell-the-wok, sell-the-iron” has always involved sacrificing the people. The previous time they implemented this method was in 1958 when they deceived people into eating from communal pots, urging them to smash their household woks and divert scarce resources towards steel production, resulting in around 40 million deaths during the great famine in peacetime. Now, the Chinese Communist Party is employing the same strategy of “sell-the-wok, sell-the-iron” to generate revenue for the government to fill the fiscal gap. However, with the government’s assets unable to cover its liabilities, they resort to extracting wealth from the people, indicating that the economy is facing a dire situation. It signifies not only the economic challenges but also a sign of the impending “great famine” in contemporary society.
Leaving aside the government’s most basic responsibility of caring for the elderly and young, a large number of unemployed young people are struggling to afford basic necessities. In August this year, a top student starved to death in a rental apartment, along with the tragic deaths of the elderly and young due to hardships under the lockdown measures imposed by the Chinese Communist Party. The so-called reform and opening-up in the past brought prosperity, redistributing wealth mostly to the ruling elite, providing a decent living for many people with the leftovers. However, with the deteriorating economic situation, there are no more leftovers to distribute.
The most tragic part is that not only are the Chinese people exploited by the Chinese Communist Party, but the Party is also collaborating with the privileged class in Africa to exploit further. By calling for a “beggars’ gathering,” the Party allocated a staggering 360 billion in aid to Africa, while basic needs such as livelihood and healthcare remain neglected in China.
In my opinion, the blind turbulence caused by the Chinese Communist Party’s “sell-the-wok, sell-the-iron” strategy will only accelerate its downfall and fuel resistance among the populace, ultimately leading to the Party’s collapse. Whether it’s a long journey or a short one, the Chinese people will bear the brunt of the pain.
“Extreme policies must lead to shortcomings, and excessive actions will provoke reactions,” is an enduring law. The escalating conflict between officials and the public and the social upheaval are significant signs of an approaching dynasty’s demise. Perhaps, the more dominant the power becomes, the more uncontrollable the divisions grow.
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