The Chinese government set up a special task force called “Sell the Pot and Iron” to monetize various state-owned assets in order to raise funds, but the effectiveness has been limited, leaving the Chinese Communist Party (CCP) facing financial difficulties. Analysts believe that fiscal tightening has contributed to the economic downturn in China.
After the burst of the real estate bubble in China, the income from land transfer fees, which used to account for about 40% of local government revenues, has significantly decreased. This sharp decline has increased the debt pressure on local governments, pushing them into a financial crisis. In response, CCP authorities have been searching for new sources of revenue, resorting to measures such as increasing tax collection, imposing fines, and conducting extensive law enforcement activities. They are also attempting to generate value from idle land, buildings, and resources. Since 2024, several provinces and cities have successively established task forces for the “Sell the Pot and Iron” initiative.
An analysis article published by The Economist on July 13th pointed out that these measures can only provide short-term support and are insufficient to address the long-standing debt issues accumulated by the CCP government.
Using Yueyang City in Hunan Province as a typical case, the article illustrated how local governments are “monetizing” their resources: old city blocks, idle buildings, and run-down ports covering about 3 square kilometers (equivalent to the size of Central Park in New York City) surrounding Yueyang Tower have been renovated and transformed into sources of rental income. The local state-owned urban investment company not only acts as a “landlord” collecting rent but also starts to invest in and hold stakes in the businesses operating in the area, hoping to share in their future growth profits.
It is emphasized in the article that this “asset monetization” approach fundamentally cannot solve the deep-rooted local debt problems that China has accumulated over the past two decades. In some cases, officials are merely engaged in a financial game of “robbing Peter to pay Paul,” such as having one state-owned enterprise pay rent to another.
Chinese issues expert Wang He, in an article published in Epoch Times titled “CCP’s ‘Sell the Pot and Iron’ Fails to Resolve Financial Crisis,” stated that the “Sell the Pot and Iron” and other financial maneuvers taken cannot fundamentally resolve the crisis but rather lead to a cycle of failure.
The article outlined two main “maneuvers” employed by authorities: centralizing all state-owned resources and assets under budgetary control, which lacks industrial support, leading to false prosperity on paper and accompanying high debt risks, and increasing the proportion of central government debt while reducing that of local governments. Despite the fact that the proportion of national debt issuance has exceeded that of local debt, the total debt amount remains higher for local governments, complicating the interest dynamics.
As a result of severe misalignment of central and local rights and financial allocations, CCP policies have been continuously failing. Without substantial deep structural reforms, relying solely on financial maneuvers is destined to fail.
Facing financial difficulties, the CCP authorities have started to implement fiscal tightening measures. Public information reveals that the CCP’s general fiscal deficit as a proportion of GDP narrowed to 2.2% in the period from January to May of this year, lower than the 2.4% recorded in the same period last year.
In a recent report by Citibank, it was noted that this tightening reflects an unexpected tightening in the fiscal situation, with both central and local governments providing less fiscal support than anticipated. The slowdown in China’s economy in the second quarter is largely attributed to the underestimated “actual fiscal tightening” by the market.
Data released by the National Bureau of Statistics of China on July 15th showed that the GDP growth rate in the second quarter hit a three-year low.