The Chinese Communist Party’s Ministry of Finance recently released the financial situation for the first half of 2024, showing a decrease in government revenue and significant declines in major tax categories, signaling a financial crisis. Decisions made at the Third Plenum to push various legislation and extend retirement age have been criticized as initiating a “money-grabbing” mode. Economic experts warn that China is facing six major crises simultaneously, eventually leading to the collapse of the Communist regime.
On July 22nd, the Chinese Communist Party’s Ministry of Finance published the financial data for the first half of 2024.
The figures reveal that in the first half of the year, the national general public budget revenue was 11.5913 trillion yuan (RMB), a decrease of 2.8% compared to the same period last year. Specifically, central government general public budget revenue dropped by 7.2%, and national tax revenue was 9.408 trillion yuan, down by 5.6%.
Most major tax categories saw significant decreases: domestic value-added tax was 3.54 trillion yuan, down by 5.6%; corporate income tax was 2.5384 trillion yuan, down by 5.5%; individual income tax was 735.8 billion yuan, down by 6.7%; customs duties were 1.185 trillion yuan, down by 5.2%; urban maintenance and construction tax was 2.56 trillion yuan, down by 6.7%; vehicle purchase tax was 1.253 trillion yuan, down by 5.4%; stamp duty revenue was 1.632 trillion yuan, a 22.9% decrease, with securities transaction stamp duty plunging by 54%.
During the first half of the year, tax revenue related to land and real estate sharply declined. For instance, deed tax was 2.779 trillion yuan, down by 10.9%, and land value-added tax was 3.074 trillion yuan, down by 4.3%.
The revenue from the transfer of state-owned land use rights in the first half of the year was 1.5263 trillion yuan, down by 18.3% compared to the same period before the real estate bubble burst in the first half of 2021, which was 3.4436 trillion yuan. Today, the revenue has decreased by over half.
Taiwanese economist Wu Jialong pointed out that from the central to local levels, the Chinese Communist Party faces a massive financial deficit. He mentioned the interconnectedness of the real estate collapse, leading to fear in households to buy homes and businesses to invest, resulting in a reluctance to borrow money. Wu highlighted that if the government also hesitates to borrow funds during this critical time, the entire society could face systemic financial risks. With nobody borrowing money, the financial system could collapse, presenting a severe problem.
In March, the Chinese Communist Party’s Ministry of Finance issued a notice urging central and local governments to tighten budgets to cope with financial constraints; this was reinforced by the Central Economic Work Conference’s call to “get used to tightening budgets.”
However, despite calls for fiscal restraint, national general public budget expenditures still increased by 2% in the first half, reaching 13.6571 trillion yuan. Among them, the national government fund budget expenditures were 3.5599 trillion yuan, a decrease of 17.6%, with the central government increasing by 16.5% while local governments decreased by 18.2%.
While the Chinese government continues to borrow, interest payments on debts in the first half amounted to 630.4 billion yuan, an increase of 6.5% compared to the same period last year.
Regarding the issues reflected in the financial situation of the Chinese Communist Party in the first half of 2024, Wu Jialong mentioned that the Party is facing “six crises erupting simultaneously.”
He elaborated, saying that the Chinese economy has lost momentum across key areas such as consumption, investment, and foreign trade. Notably, the real economy is experiencing crises like unemployment, a real estate downturn, and currency tightening, while the financial sector grapples with debt, capital outflows, and confidence shocks. Wu highlighted that with three crises each in two domains, the Party is struggling to find solutions to address the six crises concurrently.
Wu emphasized that each crisis alone would be challenging to handle, yet facing all six simultaneously leaves the Chinese Communist Party at a loss for solutions. He added that the current authorities’ efforts are essentially about prolonging their tenure as much as possible in the face of mounting challenges.
The decisions made at the Third Plenum include advancing the so-called anti-corruption legislation, amending the supervision law, and introducing laws to combat cross-border corruption.
In an article published on July 22nd, the Central Commission for Discipline Inspection’s financial branch secretary Wang Weidong vowed to enhance comprehensive supervision over the financial system to prevent and resolve risks.
Moreover, the Chinese Communist Party has long been implementing so-called cross-border “anti-corruption” efforts. Between 2014 and June 2020, over 7,831 fugitives were captured from over 120 countries and regions, including 348 individuals subject to “red notices,” with over 19.6 billion yuan in illicit funds repatriated.
Domestically, some local governments have initiated tax investigations reaching back 30 years, coordinated between tax authorities and law enforcement agencies.
Wu Jialong mentioned that the Party is now seeking to recover wealth accumulated by officials at all levels within the system due to their abuse of power. Given the significant fiscal deficit, there is no room for officials to amass personal fortunes unchecked while the Party attempts to fill the financial gap by any means necessary, essentially resorting to “money-grabbing” tactics.
Recovered taxes include previously refunded amounts and rebates provided to rural and local enterprises. Wu noted that the current financial strain on local governments compels them to trace back decades to reclaim funds disbursed during the early stages of reform and opening up.
Due to the substantial fiscal deficit, the Party is indirectly taxing various sectors, raising fees, imposing fines, and resorting to money-grabbing strategies to bridge the financial gap.
At the Third Plenum, the Chinese Communist Party also decided to promote “delayed statutory retirement age” and so-called “mutual aid pension schemes.”
According to a report released by the Chinese Academy of Social Sciences on December 28, 2023, the adjusted retirement age could be 65 years.
Regarding the measures introduced by the Chinese Communist Party, including extending the retirement age, Wu Jialong highlighted that these actions stem from the Party’s financial struggles, ultimately amounting to a “money-grabbing” strategy.
In alignment with the Party’s call to “get used to tightening budgets,” the city of Suzhou in Jiangsu Province recently introduced ten measures aimed at tightening fiscal belts, reviving idle assets, and promoting the habit of fiscal restraint within Party and government offices.
Suzhou is not alone, as at least 31 provinces and numerous cities have pledged to tighten budgets, reduce public spending, and compress expenditures since the beginning of this year.
According to data released by the Chinese Communist Party’s Ministry of Finance, as of the end of May 2024, local government debt across the country amounted to 42.3838 trillion yuan. Notably, a considerable portion of local debt in China constitutes hidden debts. An economic expert cited by The Wall Street Journal estimates that local Chinese governments have incurred hidden debts of around 50 trillion to 80 trillion yuan through opaque financing mechanisms.
For instance, in early 2019, Liuzhou city raised billions of dollars through state-owned financing platforms to fund local industrial zone construction projects. Today, the newly built industrial park remains deserted, with incomplete and abandoned buildings, illustrating that the massive financing failed to generate economic benefits, only accumulating enormous local debts.
Wu Jialong pointed out that China faces two major systemic problems within the Party: the issue of corruption through the exchange of power and money and the pressure on local officials to demonstrate administrative achievements by driving unnecessary infrastructure projects. In many cases, projects devoid of economic gains are pursued and funded through borrowings, exacerbating the fiscal deficit and snowballing debts. Additionally, the magnitude of local debts in China could be much higher than commonly estimated, surpassing even the debts of state-owned enterprises.
The Third Plenum’s resolution aims to “deepen financial and taxation system reforms,” improve budget systems, strengthen coordination of fiscal resources and budgets, and enhance local fiscal autonomy by expanding local tax bases and granting greater fiscal management authority.
According to Lu Bingyang, Executive Director of the Institute of Fiscal Studies at Renmin University of China, the decline in local government revenue due to reduced land transfer income necessitates widening local tax bases and boosting local fiscal autonomy.
Given the financial difficulties faced by local Chinese governments, many regions heavily rely on central government transfers for fiscal support. Wu Jialong predicted that in the future, the Chinese Communist Party may delegate more powers to local governments for them to become self-sufficient. However, once granted the autonomy to fend for themselves, local authorities might evolve into regional strongholds similar to those seen during the late Qing Dynasty, potentially leading to regional divisions.
Wu highlighted that with the Chinese Communist Party’s financial constraints, the ultimate solution is resorting to “money-grabbing” tactics, akin to treating the financial and economic system like a bandit. He underscored that if individuals or entities fail to comply with the demands for money extraction, they risk being charged with violations or crimes and having their assets seized. At present, China is entering a phase where citizens are essentially coerced into paying taxes and surrendering funds, all in an effort to address the fiscal deficit.
He further added that as the Party encounters fiscal challenges exacerbated by systemic corruption, massive regional and state-owned enterprise debts, it has entered a “money-grabbing” mode. Subsequently, the Party could implement covert tax increases, rampant printing of currency, and the imposition of various unreasonable controls and restrictions, reminiscent of the late stages of Chinese dynasties.
Wu Jialong warned of a potential collapse of the Chinese Communist regime through a sequence of events, starting with austerity measures causing a significant economic slowdown, leading to deflation, financial collapse, ultimately culminating in fiscal collapse, which would spell the end of the Communist rule.
“Looking at the current situation, it’s unlikely for the Chinese Communist Party to avoid the same phenomena seen during the decline of past dynasties,” Wu concluded.