The local governments of the Chinese Communist Party (CCP) have sounded the alarm on their finances. In the first half of the year, only Shanghai had a surplus in its fiscal revenue, while other provinces were running deficits. Analysts point out that the fiscal deficit of the CCP in the first half of the year has reached a new high in decades. The financial troubles of the CCP will inevitably affect its ability for stability maintenance through the use of force, making it difficult for the CCP regime to sustain itself.
On September 19, the CCP’s Ministry of Finance issued a report on eight typical cases of implicit debt accountability by local governments. The report revealed that local CCP governments have borrowed heavily from local state-owned enterprises to fill their fiscal gaps, leading to significant implicit debt.
For example, from June 2018 to May 2023, the Tianjin Port Bonded Zone Management Committee borrowed a total of 14.732 billion yuan (approximately $2.1 billion) from the Tianjin Bonded Zone Investment Holding Group Co., Ltd. and its subsidiary Tianjin Tianbao International Logistics Group Co., Ltd. All of this amount was then loaned to Tianjin Lingang Investment Holding Co., Ltd. to repay its existing debts.
On September 13, the CCP released a report on the government debt management situation for the year 2023, stating that the CCP government’s statutory debt balance was 70.77 trillion yuan (approximately $10 trillion), with 30.03 trillion yuan (approximately $4.2 trillion) being national debt and 40.74 trillion yuan (approximately $5.8 trillion) being local government statutory debt.
In mid-August, a recording of an on-site conversation between a market surveillance officer surnamed Zhang from Chengwu County, Shandong Province, and the head of a local medical technology company, revealing how local CCP governments use intimidation tactics to raise funds from private businesses, circulated widely. The recording showed Zhang mentioning the completion of only 21 million yuan out of a targeted 50 million yuan performance goal for the year and threatening the company with dire consequences if they did not comply with his demands for money.
In Shandong Province, a hotel owner surnamed Li stated that over the past year, local government inspections on fire safety at hotels had doubled, resulting in a 160% increase in fines. The repeated fines were attributed to official departments such as urban management and fire safety issuing penalties for the same issues multiple times.
Various indicators demonstrate that the fiscal coffers of CCP local governments are depleted, facing challenges in maintaining normal operations. Imposing fines under various pretexts has become a common approach to make up for the fiscal deficits.
Official CCP data indicates a growing reliance of local governments on non-tax revenue (such as fines). In the first half of this year, national tax revenues decreased by 5.6%, while non-tax revenues increased by 11.7%, surpassing the total sum of non-tax revenues for the entire year of 2014.
It is noteworthy that the CCP’s Ministry of Finance announced on the 9th that in the first seven months of this year, the national general public budget revenue was 13.57 trillion yuan (approximately $1.9 trillion), a decrease of 2.6% compared to the previous year. The national general public budget expenditure was 15.55 trillion yuan (approximately $2.2 trillion), down by 2.5%, resulting in a fiscal deficit.
Data shows that in the first half of this year, out of China’s 31 provinces and municipalities, only Shanghai had a fiscal surplus of 70.31 billion yuan (approximately $9.9 billion), with the rest running deficits. Among these, 23 provinces and municipalities had fiscal deficits exceeding 100 billion yuan (approximately $14.1 billion), 15 had deficits exceeding 200 billion yuan (approximately $28.2 billion), and 4 had deficits exceeding 300 billion yuan (approximately $42.4 billion). Sichuan led with a deficit of 413 billion yuan ($58.4 billion), followed by Henan (368.97 billion yuan, approximately $52.2 billion), Hunan (313.76 billion yuan, approximately $44.4 billion), and Hebei (305.25 billion yuan, approximately $43.2 billion).
Regarding the stark reality of the comprehensive fiscal depletion of CCP local governments, Li Hengqing, an economist at the American Institute for Economic and Strategic Studies, stated to The Epoch Times, “I am not surprised at all. This is the inevitable result of the current economic crisis in China.”
Li Hengqing pointed out that economic recession inevitably leads to a decrease in fiscal revenue, and the typical response should be to reduce fiscal spending. However, the CCP’s practices harm the nation, and the phenomenon of harsh governance will become normalized. He noted that the two major expenditures of the CCP, military spending and stability maintenance institutions, will not be reduced. The apparatus for repression, including the armed police, police, and prisons, will not be downsized unless absolutely necessary, as they are relied upon to preserve the regime. Therefore, the CCP has announced measures such as delaying pension payments and deducting health insurance premiums to cut costs.
In response to the financial difficulties faced by local governments running deficits, a recent article on Sina Finance titled “Not Pretending to Be Poor, but Truly Poor” shed light on the dire situation. The article highlighted that a significant portion (40%) of the CCP’s massive fiscal expenditures goes towards supporting 80 million civil servants who account for just 5.66% of the national population. With finances tight, the government is encountering challenges in paying the salaries of those within the system. As a result, the CCP has started selling off state-owned assets through various means, including conducting targeted operations to dispose of assets. Other approaches include taking on debt, delaying payments, imposing fines, and engaging in “distant-water fishing,” whereby local governments extort money from businesses outside their jurisdiction. Although the article sparked discussions, it was swiftly censored.
Independent commentator Cai Shenkun told The Epoch Times, “For the current CCP regime, on one hand, control relies on force, and on the other hand, it relies on money. Without either aspect, sustaining the regime becomes impossible.” Cai mentioned that provinces like Zhejiang, Jiangsu, and especially Guangdong had staggering deficits exceeding trillions of yuan in the first half of the year, a figure unseen in decades. With financial troubles mounting, it will inevitably affect stability maintenance and also impact the CCP’s initiatives in Africa, such as the Belt and Road project, as the regime’s resources dwindle.
As revenue from land finances decreases, CCP local governments have resorted to selling off state-owned assets to plug their fiscal gaps – a strategy known as “scraping the pot and selling the iron.” Governments in places like Bishan in Chongqing, Zhuozi in Inner Mongolia, Delingha in Qinghai, Yongning in Ningxia, and Quanzhou in Zhejiang have set up special task forces or issued urgent directives to carry out such actions.
Cai Shenkun mentioned that relying on confiscation and “scraping the pot and selling the iron” are merely drops in the bucket and cannot address the underlying issues. He emphasized that selling off assets would not yield attractive assets, and the primary concern lies in finding buyers for the assets being offloaded. Currently, private enterprises are unable to put forth funds for these investments, as the prevailing political atmosphere has eroded confidence in the future.
He predicted that with increased tariffs imposed by Europe and the United States on products like Chinese electric vehicles, the outlook for exports in the second half of the year will be grim. Among the three engines (investment, consumption, and exports) that drive economic growth, the only one left running — exports — is set to decelerate. Amid this scenario, the CCP will have to cut back on essential groups such as party organizations.
Li Hengqing also noted that the CCP still has one last resort, which is to “print money on a massive scale.” While the path has been paved for such action, the CCP is reluctant to resort to this measure. Printing money would be akin to drinking poison to quench thirst, as it could lead to severe hyperinflation, leaving most Chinese people unable to survive, reminiscent of the final scenes of collapse from the end of each regime in history.