Chinese economist Zhang Bin recently stated that the decrease in revenue of local governments in mainland China leading to a slowdown in expenditure is one of the important reasons causing insufficient domestic demand in China.
On the afternoon of July 22, the China Finance 40 Forum (CF40) held its Macro Policy Quarterly Report (Second Quarter of 2024) release event in Beijing. Zhang Bin, a senior researcher at CF40 and Deputy Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, presented the second quarter 2024 CF40 Macro Policy Report. Guo Kai, Executive Director of the CF40 Research Institute, and Gao Shanwen, Chief Economist of Guotou Securities and CF40 Academic Committee member, engaged in thematic exchanges.
Zhang Bin pointed out that in the second quarter of this year, although there was a slight increase in urban residents’ consumption tendencies, the economic growth momentum has significantly weakened, and the price level continues to be low, reflecting the current situation of “insufficient demand.”
He also urged policymakers to fully recognize the seriousness of the issue of insufficient domestic demand and to take “unexpected policy measures” to break the current negative cycle, boost demand, and fundamentally change market expectations to promote a healthy economic cycle.
He believed that the decline in revenue of local governments, leading to a slowdown in general government expenditure, is one of the important reasons for the insufficient demand. The general fiscal expenditure from January to May this year, which is the sum of general public budget expenditure and government fund budget expenditure, decreased by 2.2% compared to the same period last year, and declined by 0.7 percentage points in the first quarter.
Furthermore, looking at the completion status of general fiscal expenditure, only 33.5% of the annual budget progress was achieved from January to May this year, which is 3.3 percentage points lower than the same period last year.
Zhang Bin stated that the financial pressure faced by local governments further intensifies the uncertainty of the business environment. This is manifested in the increase in the proportion of non-tax revenue, the intensified tax collection efforts, not only increasing operating costs for companies but also affecting the confidence of operators. Especially for new employees, job seekers, and newly established or small-scale enterprises, the risks of salary reduction and unemployment have significantly increased, making these population groups vulnerable in the weak economic environment.
Zhang Bin mentioned that there are some risks in the operation of the Chinese economy, such as exchange rate and asset price fluctuations, pressure on some small and medium-sized financial institutions, debt repayment pressures for real estate enterprises and financing platforms, and escalating trade frictions.
He suggested that the government’s general fiscal policies should be more proactive to ensure the realization of the budget expenditure targets set at the beginning of the year. This may require increasing fiscal expenditure through methods like issuing additional bonds to directly stimulate demand and stabilize economic growth.
He emphasized the need to do everything possible to achieve the expenditure targets of the general public budget and government funds set at the beginning of the year, calling it the “bottom line.”
On July 23, the Financial Research Institute of the Chinese Academy of Social Sciences held the “China Macro Financial Analysis” Second Quarter of 2024 Release Conference and Seminar. During the event, the research team presented the “China Macro Financial Report” with the theme “Resilient Economic Growth, Pending Social Vitality Enhancement.”
At the domestic level, the report stated that due to the impact of insufficient effective demand, financial data “squeezing water,” as well as a decrease in credit reliance caused by economic structural transformation, the overall monetary and credit indicators are weak.