The collapse of local finances in the Chinese Communist Party (CCP) is no longer news, but state media continues to cover it up and promote the bright economic theory, with some news and data about local finances being inaccessible. Recently, Epoch Times interviewed Lu Ming (pseudonym), who has worked in local finance departments for many years, revealing a wealth of facts and figures about the collapse of local finances. Due to security concerns, some details have been omitted.
In recent times, the CCP’s Xinhua News Agency has been promoting the outstanding economic performance of county-level regions in mainland China, but this cannot conceal the fact that local finances in the CCP are collapsing.
In fact, since the second half of this year, the CCP has introduced many policies to rescue local finances, including issuing local bonds. According to Reuters, authorities plan to issue a record-breaking 3 trillion yuan in special national bonds in 2025.
Lu Ming told Epoch Times that county-level finances are now paralyzed, manifested in the excessive borrowing way beyond the financial capacity. It feels like intentional borrowing without intending to repay. For example, in a county where the annual financial income is only a few billion, they have already spent over 20 billion. Isn’t that insane?
“This is like having an income of 100,000 yuan and spending 300,000 yuan,” he said. This gap is filled by borrowing, with various types of debts including specific debts, short-term national debts, and long-term local debts. Long-term local debts can last up to 50 years. The CCP doesn’t even care if it will be around for 50 years.
“But many people are still being deceived into buying national bonds, including myself who have received calls asking me to buy national bonds. The bonds are being marketed by banks over the phone, saying the returns on national bonds are very high.”
As someone familiar with the local finance system, Lu Ming estimates that the budget arrangements for 2025 will reveal the collapse of the finances.
He explained that since the government budget is basically based on the previous year’s financial expenditures to plan for the next year’s budget, each department has its own specific expenditures.
Routine expenditures refer to personnel expenses or office supplies, paying water and electricity bills, which are relatively fixed expenses; specific expenditures refer to the core business of the department, such as agricultural and rural bureaus having to repair rural roads annually and control crop pests. If there’s no money, none of these will be done, and there will be no more subsidies from the Commerce Bureau for export companies.
He pointed out that in 2025, the specific area has been cut by 70% based on 2024, retaining only 30%, which has a devastating impact on the operational capacity of the county government as a whole.
“I think 2025 will be a very tough year, and 2026 ahead will be even tougher. Who knows what will happen in 2026, the consequences are hard to fathom.”
In the CCP’s financial system, there’s a saying of the “Three Guarantees,” referring to “guaranteeing basic livelihoods, guaranteeing wages, and guaranteeing circulation,” but now due to the financial difficulties, even the “Three Guarantees” can’t be ensured.
“As far as I know, the annual spending in the county is around 4 billion yuan, but only 2.7 billion has been budgeted, leaving a gap of 1.3 billion. Various livelihood expenditures, including disabled persons’ security funds, subsistence allowances, military death benefits, and income subsidies for veterans transitioning to enterprises, are budgeted only about 1 billion.”
Lu Ming explained that this part (income subsidy for veterans transitioning to enterprises) shouldn’t need a subsidy in the first place. So why does it need to be subsidized now? It’s because many veterans, after transitioning to enterprises, earn less income than civil servants. To maintain stability and prevent this group from rebelling, the difference in income compared to civil servants is subsidized by the government. Now with the lack of funds, this subsidy won’t be sufficient.
“Previously, the livelihood section should have had around 2.5 billion yuan, now it’s more than halved. I feel like they don’t prioritize livelihood anymore. They don’t have the money, so they can’t prioritize it either.”
Due to factors such as the CCP’s pandemic control, crackdown on private enterprises, support for the Russia war, and worsening relations with the West, mainland private enterprises are closing down in large numbers, and foreign capital is withdrawing, resulting in decreasing tax revenues from normal businesses. According to the Ministry of Finance data, in the first 10 months of this year, national tax revenues in the general public budget decreased by 4.5%.
Lu Ming told Epoch Times that now with financial paralysis, another sign is that the structure of financial income has seen a decrease in tax revenues contributed by normal businesses.
Lu Ming pointed out that strict business-wise, even in their higher-level city finances, they weren’t that well-off before the pandemic hit. After the pandemic, the wave of business closures hit, and their finances are in a bind.
Many private firms have felt there’s no future anymore, with more entrepreneurs fleeing. This kind of flight is more discreet; these entrepreneurs still have bank loans pending, but suddenly disappearing without taking anything, closing down their enterprises, leaving employees hanging, without even applying for bankruptcy, they just vanish. Nowadays, there are many such cases.
Lu Ming said that in a certain town under the county he’s in, an average of two to three small-scale clothing enterprises have been closing down daily; most of these enterprises are family-owned workshops employing around a dozen workers each.
He remarked that with numerous business closures, even the better private enterprises no longer exist. The pillar industries in the county are mostly export-oriented companies. Since Xi Jinping took office in 2012, the situation has been downhill, with the current state being unsustainable.
“Why are exports failing? It’s related to Xi Jinping’s aggressive foreign policy. Because the export enterprises in the county basically need to reach Europe and America, and relations with Western countries have deteriorated, resulting in a sharp decline in tax revenue.”
Lu Ming told Epoch Times that currently, what is it relying on? It’s relying heavily on hefty penalties.
According to Ministry of Finance data, in the first 10 months of this year, non-tax revenues in the national general budget increased by 15.3% year-on-year.
Lu Ming said that ideally, normal tax revenues should account for over 60% to 70% of financial income, which is a healthy fiscal income structure. Other governmental incomes, relying on public authority and penalties, are primarily from various fines such as illegal parking fines and retroactive investigations on companies over the past 30 years. The penalties on companies over the past 30 years involve hauling many business owners over and making them pay a certain amount, even detaining people if they don’t comply.
“For example, a person was fined for accidentally running a red light while driving because the view was blocked by a large truck in front. In the past, this wouldn’t have warranted a fine, but now even such incidents are being penalized, and he feels helpless.”
Since 2022, reports of civil servants’ salary cuts in mainland China have been surfacing, and now this trend is worsening, with some regions unable to sustain staff wages.
Lu Ming told Epoch Times that even government officials’ salaries cannot be sustained now. With the sheer number of government officials being too high. “In our city, there are around 35,000 government officials, how much do they consume every year?”
“In XX County, government officials haven’t received salaries for several months, and this phenomenon has begun to spread. In another county nearby recently, there have also been delays in paying salaries. Many regions are borrowing money internally to remedy some local financial issues, citing to preserve the income of government officials.”
Lu Ming pointed out that the reason public officials are unable to pay wages on time is primarily because local finances are near empty; all the savings were depleted during the pandemic, with no income coming in. Moreover, every locality is facing a financial income crisis with no recovery in sight.
Government officials’ incomes consist of basic wages and bonuses, with bonuses routinely deducted. Everyone is already speculating that this year’s year-end bonuses are likely nonexistent. In the past, by December, a portion of the year-end bonus would have been disbursed, usually tens of thousand yuan.
This year, there has been no advance, and it’s almost the end of January, with the Lunar New Year approaching in just over a month. If they were to distribute year-end bonuses, it should have been underway. But with no news at all, it seems like it won’t happen anymore. Additionally, public servants’ housing provident funds are facing imminent reductions.
“I estimate that whether we’ll able to get the income for 2024 in 2025 is now a big question mark,” he said.
“I also know that the communist party’s military hasn’t received salary increases for several years. For those serving in the military, the salaries are relatively high, so if they find out that there won’t be any increases, it will definitely unsettle them.”
Lu Ming’s insight into the system’s internal position allows him to observe significant financial contradictions between superiors and subordinates within the CCP’s system.
“Above, they are unceasingly siphoning off the bottom’s finances,” he said. “In the county’s finances, we not only have to support various financially dependent personnel but also contribute various expenditures upwards. For example, the city above wants to build an anti-corruption educational base, which is essentially a prison, and each county must contribute; the poorer the economy, the less they have to contribute. Both our first and second phase projects were given quite a lot of money.”
“Now the city wants every county to pay tens of thousands for government employee salaries, but every county is resisting. Everyone knows that if they comply, it will create instability.”
Lu Ming said there is also the need to transfer expenses to western regions, supporting Xinjiang, supporting impoverished mountainous areas in Sichuan, with targets specified. Supporting the west requires a significant amount of money to help their finances sustain. Some western mountainous counties have very few populations, but the whole administrative structure and other governmental agencies, regardless of size, are fully maintained.
“Moreover, now as far as I know, the incomes of public officials in the west aren’t as much lower compared to Eastern regions; the income gap has shrunk significantly.”
Lu Ming finds it peculiar that despite the financial difficulties, there are still expansions happening, such as new prisons being built, new police cars being purchased.
“Why do they have money? It’s because they aren’t reducing expenditures on maintaining stability. The Communist Party government can’t possibly cut down on stability expenditures; it requires a massive amount of funds to ensure, but now police salaries have been cut down.”
For Lu Ming, another interesting occurrence is the purchase of police vehicles.
“Originally, the county didn’t have any police cars that needed to be scrapped, but it’s strange that nearly twenty new police cars were added recently, all purchased were Chinese-made cars, with a considerable proportion being BYD electric cars. Electric cars aren’t as useful for the Public Security Bureau; they charge so slowly that even if they’re needed, it’s impractical. The police have stated they can’t do anything about it; it’s a mandatory requirement, there are targets to meet, they must procure BYD electric cars; they’re now supporting BYD.”
Lu Ming introduced that besides just building prisons, there have also been large-scale comprehensive enforcement complexes constructed under the Public Security Bureau. From the exteriors, the buildings are grand with various riot control tools inside, functioning comprehensively, even accommodations for temporary detentions. This enforcement complex is different from urban management; the urban management officers are less equipped for violent enforcement, mainly focusing on urban appearance; Public Security is deep-rooted, handling political prisoners, ideological convicts, and more.
“I think various levels of communist party governments, party committees at all levels, are preparing for potential unrest, attempting to suppress the people.”
Lu Ming predicts, “Now there’s not only so much upheaval like the Zhan Zaihong incident and the like, I feel that slowly, the anger will turn towards the government, towards the henchmen of the Communist Party. This is a contingency plan aimed at violently suppressing the people, and they must have it ready. If there’s social unrest, those involved, I believe, will be detained.”
He has also observed another phenomenon, now hospitals are extending their capacities, funded by national debts. Grain depots are also expanding, along with shelters.
He speculates that these signs indicate that if they don’t engage in external wars, they might engage in civil war. These things seem to be preparations for internal conflict. Why build hospitals if there’s no war on the horizon?
China’s economy is severely declining, and the CCP’s political actions are regressive. The recent overthrow of the Syrian government – what impact does it have on the officials within the CCP system?
Lu Ming believes that most officials within the system are pessimistic about China’s economic future. The overthrow of the Syrian government definitely has an impact on the Communist Party.
“I know someone who is extremely anxious about the fall of the Syrian government. He said the so-called political strongmen are decreasing one by one. He bought a house with a high loan, saying if it doesn’t work out, if Xi falls, he won’t have to repay the loan.”
“Now inside the system, people are cursing Xi, hoping for his downfall.”
Lu Ming said that, in the county government, many people have already resigned and don’t have confidence to continue. Some are afraid of being purged due to their positions, some have left for foreign countries.
“If insiders want to cause trouble, they won’t organize rallies like others. If they want to stir things up, the methods have to be more sophisticated. At the very least, several departments would connect to do something. For example, the HR department would expose the ugly incidents arranged by former leaders, the corruptions from those years, bringing everything out. The impact would be way beyond external rallies and commotions.”