Several Chinese local governments have been accused of inflating fiscal revenues through fraudulent methods, with just a few counties and cities in Guangdong province alone artificially boosting nearly 20 billion Chinese yuan. Chinese media call this a “chronic issue”. Experts believe that the officially disclosed figures represent only a portion, and the result of multi-layered falsification is that the basis for government policies is all false, making it impossible for the economy to break free from crisis.
China’s various provinces have successively released audit reports for the previous year. According to a recent report by Chinese media outlet “First Financial Daily”, audit reports from Guangdong, Hebei, Sichuan, Qinghai, Liaoning, and Inner Mongolia Autonomous Region all reveal instances of financial falsification by some county and city governments.
In Guangdong, 3 cities and 3 counties inflated fiscal revenues by 17.101 billion yuan through methods like state-owned enterprises purchasing state-owned assets. The fraudulent methods involved creating false financial revenue data through internal transactions, giving the appearance of revenue growth on paper but not actually increasing the financial capabilities of local governments.
In Hebei, 1 city and 7 counties used methods such as falsely disposing of public welfare assets and overpaying state-owned capital operation income to inflate fiscal revenues by 2.495 billion yuan.
Sichuan directed donation funds to be paid into the same-level finance, leading to a 41.5222 million yuan increase in fiscal revenue for the local government. Qinghai shifted recovered funds from previous years into the general public budget, creating a false financial strength of 20 million yuan.
Liaoning had 4 cities and 19 counties falsifying non-tax revenue through methods like paying franchise operating rights and transfer fees, land transfer fees, and fines using fiscal funds. Inner Mongolia, likewise, increased non-tax revenue by 2.8649 million yuan through improper collection of funds in 4 league cities.
Some local governments manipulate revenue collection processes, with certain regions involving tax funds amounting to 94.79 billion yuan.
Furthermore, in Shandong, 30 units delayed paying revenue to the state treasury based on their needs, with 19 units disposing of revenue amounting to 109 million yuan in 2022, postponed to 2023 to be cashed.
The report points out that inflating fiscal revenues by local governments is an “old issue” because revenue growth indicators are crucial performance metrics. With the fiscal deficit widening in recent years, some local governments struggle to balance budgets, resorting to falsely inflating fiscal revenues and artificially adjusting revenue collection progress, resulting in misreported government finances.
In June last year, the Chinese National Audit Office released an audit report mentioning that in 2022, local governments across regions increased fiscal revenues by over 80 billion yuan through measures like self-sale and self-purchase of state-owned assets. They also enlarged implicit debts by over 40 billion yuan through actions like committing to buy back guarantees and state-owned enterprises cushioning infrastructure construction.
Taiwanese financial expert Huang Shicong told Epoch Times that the extraordinary local debt in China is alarming, closely tied to past revenue falsification. The publicly acknowledged discrepancies are just the tip of the iceberg. To truly understand the magnitude of these issues, all past accounting fraud and false revenues must be uncovered.
“Checking local governments from the center, while it may seem like shifting blame, the current authorities are concerned about financial system risks and aim to identify and resolve problems. Without a clear understanding of the scale of these discrepancies in local debt, it’s challenging to evaluate the needed resources for recovery.”
Chinese issues expert Wang He also told Epoch Times that the audit results from various regions may not reflect reality, as the true data are often kept undisclosed. Mainland media selectively cover reports, leaving out critical details.
He noted that the economic situation is dire, prompting the Chinese Communist Party to crack down on these issues to ensure the continued operation of the regime. However, the regime has long misled higher-ups from grassroots levels to the State Council, establishing a pervasive system of deceit that is challenging to rectify.
In fact, local governments under the Chinese Communist Party have already admitted to falsification. For instance, in early 2017, Liaoning admitted to inflating fiscal data. In early 2018, Inner Mongolia and Tianjin successively recognized economic data falsification. These provinces proactively adjusted their data due to statistical fraud.
Shi Zhengwen, a professor at China University of Political Science and Law, criticized local governments for artificially inflating fiscal revenues, obscuring the true financial situation, concealing actual fiscal deficits, heightening local fiscal risks, disrupting the central government’s judgment of local financial realities, and damaging government credibility.
Wang He emphasized that the primary consequence of falsification is disruption in decision-making. For example, despite the Chinese Communist Party continuously touting an “ongoing economic improvement”, the decisions are based on falsified data, undermining the credibility of assessments.
“Without a foundation of authenticity, these data become part of the political game. These circumstances have led to continuous setbacks in the Chinese Communist Party’s economic decisions, a significant factor contributing to the current economic difficulties.”
Regarding the Chinese central government’s recent emphasis on “statistical rectification”, Professor Xie Tian from the Darla Moore School of Business at the University of South Carolina told Epoch Times that the Chinese economy’s long history of falsified data traces back to the central authorities. Attempting correction through political movements is ludicrous because the root cause lies with the central authorities. “If the top doesn’t set the right example, the lower levels won’t act this way.”
Huang Shicong believes that the ongoing crackdown on falsification by the Chinese Communist Party aims to prevent errors and avoid increased investments. This cautious approach in governance is making it even more challenging for the Chinese Communist Party to overcome the economic crisis.
The Chinese central authorities in Beijing have repeatedly hinted at requesting falsification or concealing the truth. Since last year, Chinese Communist Party leader Xi Jinping and top officials from the propaganda system have frequently mentioned “singing the theme of economic optimism.” Several economic scholars who have disclosed the truth have faced censorship.
In recent years, there has been a tightening of economic and political information by the authorities. Data related to economic activities such as land sales, foreign exchange reserves, bond transactions, and more have been restricted. After a surge in youth unemployment rates last year, statistical metrics were modified. On August 19 this year, the Shanghai and Shenzhen stock exchanges stopped the real-time trading data for Northbound funds representing foreign capital, making it more challenging to observe the situation of foreign capital leaving China.