China’s economy is facing numerous challenges, with local governments heavily indebted. Recently, a whistleblower in mainland China revealed that their relatives were involved in a government-backed old city renovation project, only to have the project completed and the construction funds withheld, leading to the collapse of businesses, company closures, and even massive debts burdening individuals, making it difficult to sustain their livelihoods.
In early May, a woman named Li Huixiang (pseudonym) from Guangdong shared with Epoch Times that her close friend in Guangzhou had a failed investment company that took on an old building renovation project, which was left unpaid by the government, resulting in the company’s closure. They are now struggling to make ends meet, unable to pay rent, loans, and other expenses.
Li Huixiang disclosed that her friend collaborated with the local government about three years ago to undertake an old city renovation project in Nansha, Guangzhou. Through backdoor deals and bribery, the friend secured the project but faced financial troubles due to delayed government payments after the project completion.
The old house renovation refers to the “Guiding Opinions on Urban and Rural Old Area Renovation Work” issued by the State Council Office of China in April 2020, aiming to stimulate consumption and drive economic growth. Despite the Chinese authorities claiming a significant investment of 4 trillion RMB in renovating old areas, many companies have ended up footing the bills upfront and not receiving payments after project completion.
Li Huixiang stated that with the real estate sector collapsing, her friend couldn’t afford to continue the government-backed old city renovation project. As of now, no payment has been received, resulting in a loss of all the upfront investments in renovation, materials, labor costs, etc.
The recession caused by the three-year pandemic lockdowns has seriously impacted China’s physical economy. From 2023 to the present, numerous Chinese real estate companies and trust management institutions have faced financial crises, leading to a downturn in the real estate and stock markets, while local government debts continue to soar.
The economic downturn and financial difficulties have put immense pressure on local governments, with reports from “China Economic Observer” last August indicating that local financial bureaus were being besieged daily by people demanding money due to the recession. Many prefecture-level cities struggled to fulfill the “triple guarantee” (ensuring stable economic growth, maintaining employment, and safeguarding the people’s well-being) due to financial constraints.
In a nutshell, financial conservation is challenging, but generating income is even more so, with local finances and the national economy teetering on the edge of collapse, prone to erupting at any moment.
According to a report by “Financial Times” last August, local government debts in China were estimated to reach a staggering 94 trillion RMB, prompting the State Council to dispatch task forces to localities for debt reduction initiatives. Yuan Haixia, Deputy Director of the Research Institute at China Chengxin International Credit Rating Agency, highlighted that by the end of 2021, China’s total debt had soared to 336 trillion RMB, equivalent to a per capita debt of 240,000 RMB.