Whenever China’s economy is in decline, the Chinese Communist Party (CCP) will require government departments to tighten their belts and heavily promote the idea that the government is tightening their belts for the sake of the people’s “good days”. However, this political game does not solve China’s economic problems; on the contrary, it accelerates economic contraction as the CCP, for the sake of regime security, will not truly allow economic development to flourish.
Premier of the CCP, Li Keqiang, in the Government Work Report of the two sessions, called for “all levels of government to get used to tightening their belts”, after which the CCP’s Ministry of Finance officially issued a document requiring both central and local finances to implement the “tightening of belts” policy.
Local CCP officials quickly responded by implementing related measures, rigorously controlling expenses related to official travel, and tightening general expenditures. This year, at least 21 provincial-level governments have reduced the budget for official vehicles. The Governor of Guizhou Province pledged to uniformly reduce public expenses in provincial government agencies by 15%; Hunan required a 40% reduction in maintenance expenses for provincial-level office buildings in 2024, with the condition that official vehicles must meet both the criteria of “over 8 years of service life” and “driven over 250,000 kilometers”.
The Yunnan Provincial Statistics Bureau requested not to set temperatures below 26 degrees Celsius in the summer; authorities in Inner Mongolia stated that government agencies should minimize the purchase of new equipment; Yibin City in Sichuan Province required officials to use lower-quality paper for printing daily documents.
A state-owned iron and steel plant in Yunnan urged employees to strictly control the consumption of bottled water across units and encouraged employees to bring their own water bottles; a county in Inner Mongolia incentivized government employees to walk within a one-kilometer distance, ride bicycles within 2 to 5 kilometers, and use public transportation for longer distances.
Taiwan’s overall economic scholar Wu Jialong told Dajiyuan that there is a severe fiscal crisis from the central to local levels, where there is really no money left, so civil servants have to tighten their belts. Initially, prioritize military, armed police, and public security personnel related to stability, then cut contracts for temporary staff, and have contracted staff support each other, saving some of the expenses of civil servants.
Regarding why the government is now running out of money, Wu Jialong explained that in the past, local governments borrowed money for infrastructure projects to gain attention from superiors and for promotion, known as the debt-driven economic model. The issue is that these construction projects look impressive but lack economic benefits. A classic example is in the mountainous areas of Guizhou where many highways and bridges were built, which have no economic benefits and have turned into debts, requiring additional expenditure to maintain the infrastructure.
He mentioned, “Especially after the real estate crisis, local governments cannot get financial revenue from land transfers, which accounts for about 40% of fiscal revenue. Now, they have to cut the salaries and bonuses of civil servants.”
American economist Davy J. Wong told Dajiyuan that in the past, fiscal reliance was on exports, foreign investment, and real estate, but now these aspects have significantly declined, with some industries even shrinking, leading to financial difficulties.
He added that from 2012 to 2020, due to the anti-corruption campaign and rebuilding trust with civil servants and the military, salaries of civil servants increased by an average of 3 to 4 times, but now this approach is no longer necessary.
Experts suggest that authorities should focus on how to increase revenue and reduce debt for local governments. The concept of tightening belts cannot significantly alleviate financial pressure; on the contrary, it may further trigger economic contraction, leading to a vicious cycle.
Wu Jialong said that as the public sector spends less, private sector income naturally decreases, leading to a decline in overall demand, which in turn brings about the next wave of austerity pressure, known as the paradox of thrift in macroeconomics. The result of everyone tightening their belts together leads to continuous economic contraction, eventually creating an expectation of deflation, making it even more challenging to reverse the economy.
He explained, “Keynes had already raised this issue – in times of economic downturn, one should not emphasize tightening belts but rather encourage spending, which is necessary to revive total demand.”
David emphasized that if the CCP truly wants to improve the economy, it should encourage private enterprises. However, the current situation is the reverse; the state sector is expanding while the private sector is shrinking, reducing private capital.
He analyzed that Beijing’s focus is mainly on controlling and ensuring that everything follows their political needs for economic development. The difficulty lies in aligning private economic growth with political interests, which poses a major challenge.
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