To ensure economic growth, the Chinese government, including six ministries, recently jointly launched a new policy to halt municipal infrastructure projects with no revenue or insufficient revenue to avoid increasing hidden debts. Some local governments have started “selling the pot and iron.” Analysts believe that the Chinese government’s finances are already at a breaking point, and it will be very difficult to resolve the debt crisis in this way.
The six ministries of the Chinese government, including the Ministry of Finance, the Ministry of Housing and Urban-Rural Development, and the Ministry of Public Security, jointly released the “Regulations on the Management of Municipal Infrastructure Assets (Trial)” on August 26, officially implemented from September 1. The document strictly prohibits illegally raising debts for municipal infrastructure assets without revenue or with insufficient revenue, and prohibits increasing hidden debts. Its goal is to “prevent government debt risks.”
Chinese issues expert Wang He told Epoch Times that this is a very abnormal behavior, indicating that the debt crisis is very severe, and the current situation is under great pressure.
He said, “In the past, some of the Chinese Communist Party’s policies were not transparent, but this time it is public, indicating that the top leadership of the CCP is very anxious about this issue. The biggest problem in China is local hidden debts.”
Scholar Li Hengqing from the Washington Institute for Information and Strategic Studies also told Epoch Times that both the central and local governments in China are facing the same debt pressure, overwhelmed and bursting everywhere. The six ministries were forced to issue a joint statement, demanding the suspension of construction projects without economic benefits. “CCP officials will only realize the severity of the situation when the coffin is being carried,” he added.
After the joint publication of the document by the six ministries, it sparked strong reactions. On September 16, the overseas self-media “Financial Eye” exclaimed: 40 years of “mega infrastructure” halted by six ministries! Economic recovery has not arrived, but despair has engulfed! The Chinese debt crisis is sweeping the nation!
Since the 1980s, officials at all levels of the CCP have carried out large-scale infrastructure construction projects such as high-speed rails, airports, railways, highways, and bridges. These projects not only created political achievements but also benefited various interest groups. As a result, China’s infrastructure has surged over the past 30 years. However, “mega infrastructure” not only led to massive corruption but also piled up government debts at all levels.
Taking high-speed rails as an example, according to the China Business News, as of May this year, 26 high-speed rail stations in China are idle or almost idle. Some of these stations have been completed for more than a decade without operation. For instance, the Haikou Haitou High-Speed Rail Station in Hainan, with an investment exceeding 40 million yuan, was completed over seven years ago but has not been put into use due to insufficient passenger flow, leading to severe losses once operations start.
Moreover, this situation is not limited to small cities, as some high-speed rail stations in major cities and provincial capitals are also idle. However, local governments are increasingly eager to invest in subway systems for political achievements and image improvement.
For instance, Gansu’s Tianshui incurred debts to construct a light rail project with annual revenue of only 1.6 million yuan, while operational costs amount to 40 million. Similarly, even in bustling metropolises like Shanghai, the Zhangjiang Light Rail Line 1 was discontinued, and the Tianjin Development Zone Light Rail Line 1 was dismantled. These cases represent typical models of local debt formation.
Wang He pointed out, “China has built over 200 civil transport airports, but only 50 are profitable; the vast majority are losing money, and the more airports are opened, the greater the losses. The CCP has always boasted about China’s large-scale infrastructure, contrasting it with the United States. However, the assets formed by the CCP’s infrastructure are of low quality.”
Li Hengqing stated, “China’s real ‘mega infrastructure’ began in 2008, with massive projects and image projects. These image projects were all debt-ridden, but officials at all levels did not plan to repay the debts when borrowing.”
Chinese Minister of Finance Lan Fo’an reported the debt situation for the first time to the 11th meeting of the 14th NPC Standing Committee of the CCP on September 10. By the end of 2023, the total legal debt balance of the national government amounted to over 70 trillion yuan. Of this, national debt exceeded 30 trillion and local government debt exceeded 40 trillion.
“The fact that the State Council reported the debt issue to the NPC for the first time indicates that the debt problem has become a major concern for the CCP. The biggest problem in China now is hidden debts, which were not mentioned in the report. Therefore, this report is more of a formality and lacks substantive significance,” Wang He said.
Li Hengqing stated, “Many international organizations estimate that just local government debts (excluding hidden debts) amount to over 96 trillion yuan. International organizations believe that China’s debt is at least 15 to 20 trillion yuan, so the reported 70 trillion yuan is deceptive. The CCP was compelled to disclose debt figures due to international public opinion and financial rating agencies.”
In 2023, China’s investment in the construction industry reached 23 trillion, with real estate investment at 11 trillion, making infrastructure investment twice that of real estate investment, accounting for 18% of China’s GDP. Considering how China’s economic growth has been driven by infrastructure development and the current situation, stopping “mega infrastructure” is deemed unreasonable. The only reason for the comprehensive suspension is believed to be uncontrollable local debts.
According to Guangfa Fixed Income’s statistics, by the end of 2023, the scale of local debts in provinces such as Chongqing, Guizhou, and Yunnan, including hidden debts, had exceeded five times the local fiscal revenue. Qinghai, Jilin, and other provinces have exceeded eight times.
Another set of statistics released by the Chinese Ministry of Finance for the first seven months of this year showed that the general public budget revenue in the country dropped by 2.6% year-on-year, while expenditures increased by 2.5%, resulting in a fiscal deficit of 5.74 trillion.
Among the 31 provinces, municipalities, and autonomous regions, except for Shanghai, which had a surplus of 70.3 billion yuan, all other regions experienced revenue shortfalls. There were 23 provinces with deficits exceeding 100 billion yuan, 15 provinces with deficits exceeding 200 billion yuan, and four provinces exceeding 300 billion yuan, with Sichuan leading the deficit with 413 billion yuan.
More troubling is that at least one-third of Chinese cities this year cannot repay the interest on local debts. Therefore, several regions have issued documents to “sell the pot and iron”, vigorously calling for resolving the local debt crisis. The main approach of “selling the pot and iron” relies on local enterprises and construction platforms to dispose of or activate existing funds to fill the fiscal gap.
Wang He explained, “Some CCP financial experts always claim that the US federal government is asset-negative, while the CCP government has massive assets. But whether these assets are high-quality or junk assets, effective or ineffective assets, and whether they can be liquidated, this is a major problem.”
Li Hengqing also noted that even if they “sell the pot and iron”, there may not be buyers. In reality, “selling the pot and iron” is just for show, for the leadership to see, to shift the burdens. “If the central government does not intervene, local governments will let things deteriorate; if the central government cannot bear it, Xi Jinping will definitely come to the rescue. They are all deceiving Xi Jinping.”
As the strategy of “increasing revenue” proved inefficient, provinces like Shandong, Henan, and northeastern China started “reducing expenditures”, leading the charge in massive streamlining of public institutions, initiating the “smash the iron rice bowl movement.”
A recent article published by Sina Finance featured a statement from a relative working within the state system, saying, “Even though the appearance of ‘selling the pot and iron’ seems manageable, the real fear lies in not receiving salaries or bonuses. She hasn’t received her salary for months, and if this continues, she may not even be able to afford basic necessities.”
The article pointed out that many people attribute the cause of local financial difficulties to falling property prices, but real estate is just a catalyst. The fundamental reason is that “most cities have not really developed in recent years. This is a terrifying reality.”
Wang He expressed that the core of the CCP’s economic policy is to maintain growth, which can only be achieved through infrastructure. However, the CCP has now lost the ability to make decisions and cannot resolve the contradiction between sustaining growth and infrastructure.
Japanese senior media personality Katsuji Nakazawa wrote on September 18, stating that “selling the pot and iron” has rapidly gained popularity in local government circles and grassroots communities in China, becoming a political slogan. This phrase has become a mystery. “If the pot is smashed, which is essential for cooking, it means people will have to endure hunger every day.”