With the deterioration of China’s economy, some local governments simply refuse to pay back all the money they borrowed in the past, because the banks can’t do anything about it anyway.
Moreover, some local governments have resorted to a “fine-based economy” to sustain themselves.
Pervasive Problem of Willful Default
Wuhan University Associate Professor Feng Chuan published an article on NetEase in which he discussed the pervasive problem of overdraft in local governments at various levels in China.According to Mr. Feng, credit overdraft in local governance has become the norm, and the local governments often become the biggest “deadbeat.” He outlined a chain of distrust that begins with county governments defaulting on their financial obligations to township governments, enterprises, and banks. This pattern of default then cascades down to township and village governments, ultimately undermining trust between officials, villagers, and construction teams.
Central Control of Tax Revenues the Root Problem
Independent TV producer Li Jun said on NTD’s Chinese-language program “Pinnacle View,” that this problem should be blamed on the central government, not the local government.
“This scholar believes that this kind of rogue behavior starts with the county government, but I don’t think so, because it actually began with the central government,” Mr. Li said. “For example, when China implemented the zero-COVID policy, the central authorities demanded ‘zero-COVID’ and economic development at the same time. How is that possible? So this in itself is a very rogue behavior.”
He explained that the main financial sources of local governments are real estate and local businesses and enterprises. However, many of the larger state-owned enterprises fall under the jurisdiction of the central government, leaving local governments to rely heavily on taxation from private enterprises for revenue. With the private economy and the real estate sector currently facing significant downturns, local governments are increasingly finding themselves in a challenging financial predicament. As a response to these growing pressures, some local governments have resorted to what is being referred to as a “fine-based economy.”
Mr. Li cited publicly available data to illustrate his point. In 2021, China’s administrative fines increased by 19 percent over the previous year, reaching 370 billion yuan (about $51 billion), which exceeded the customs tariff, exceeded the vehicle purchase tax, and accounted for 1.83 percent of its fiscal revenue.
“In the past two years, we have seen stories on the Internet about fines that are basically unimaginable. For example, the Beijing Wenxin Steamed Bun Shop was fined 15,000 yuan (about $2,072) for selling soft Tofu soup, which exceeded the scope of licensed business items. A vegetable farmer in Henan Province, who just sold some vegetables for about 12 yuan (about $1.66), was fined 55,000 yuan (about $7,600) because the urban management officer said he should have set up a stall in that location,” Mr. Li said.
Liu Shaochun, former deputy director of the Forestry Bureau of Junshan District, Yueyang City, Hunan Province, said on the show that local governments in China are indeed facing financial difficulties. When they run out of money but still have expenses to cover, they often resort to reneging on their debts.
“A major reason for this problem is that the central government controls a large share of tax revenues, leaving local governments with limited resources to meet their obligations,” Mr. Liu said. “Despite their financial constraints, local governments are still responsible for paying salaries to civil servants, providing agricultural subsidies, funding education, and supporting urban development.”
He added that the non-payment of salaries and other expenses can lead to delays in the delivery of public services, such as education and healthcare, and this situation is likely to worsen as China’s economy slows down.
Mr. Liu went on to explain how the Chinese Communist Party (CCP) plunders people’s wealth at all times, even during severe economic recessions.
“The ruling philosophy of the CCP is that the wealth of the world all belong to me. They have a saying that ‘state enterprises are our own, and private enterprises belong to the country.’ The CCP’s elite families are rich and powerful, and they can choose to become the bosses of state enterprises, turning these state enterprises into private properties. As for ‘private enterprises belong to the county,’ it means the authorities frequently audit your taxes and harasses you, constantly raising questions and finding faults. They are always ready to investigate and plunder you. Their claim of fiscal restraint is merely a façade for the public. How could the government ever tighten its belt? As the saying goes, ‘No matter how challenging the times, there should be no belt-tightening for the government, nor do government officials endure hardship.’” He said.
Chinese people often say that the CCP treats civilians like “leeks.” The expression “harvesting leeks” in Chinese is a metaphor used to describe how people are exploited for their wealth repeatedly, much like how leeks can be cut and regrow for multiple harvests.
Mr. Wang believes that the situation of Chinese civilians is worse than being leeks.
A Sign of the CCP’s Failing System
Guo Jun, editor-in-chief of the Hong Kong edition of The Epoch Times, said on “Pinnacle View” that the breakdown of local governments in China is a harbinger of the CCP’s crumbling system.“Local governments, especially those at the grassroots level that are closest to ordinary citizens, are the best reflection of a country’s basic system and governance level. In China, local governments include villages, townships, streets, towns, and counties,“ she said. ”The relationship between county-level governments and the people below them is the most important indicator of a country’s basic governance.”
Ms. Guo pointed out that in a democratic system, the most trusted institutions are usually the lowest level ones, because the officials are directly elected by the local people, while in communist China, it is just the opposite.
“In general, Chinese people least like and trust the local governments, including townships and county governments, and they seem to trust the central government the most,” she said. “This trust in the central government is due to propaganda, mainly due to control of public opinion and the news, but another factor is that, oftentimes you have first-hand experience of how the local government does bad things, but the central government is far away, you don’t get to see how they carry out things.”
According to Ms. Guo, the biggest characteristic of the CCP system is its low efficiency and high spending.
Beijing’s New ‘Quality Productivity’ Policy Exacerbates Disparities
Chinese leader Xi Jinping recently proposed a new economic policy calling for “new quality productive forces.” Ms. Guo said this policy is not only ineffective in aiding local governments but will also worsen rural economies.
“In the past, when discussing China’s social problems, the CCP often referred to three major imbalances: rural-urban imbalance, worker-peasant imbalance, and regional imbalance,” she said. “Take regional imbalance for example, the number of megacities in China has grown rapidly, with a large influx of people moving to these cities and the eastern developed regions. This is because megacities have more resources, businesses, and money.”
Beijing’s proposed “New Quality Productivity” policy involves central government subsidies for high-tech industries, with policies continuing to favor more developed regions.
Ms. Guo believes this will exacerbate rural-urban and regional disparities, further siphoning resources from central and underdeveloped regions to megacities.
“China’s social problems stem from these imbalances, yet Beijing’s prescription is to amplify these imbalances. Unbalanced situations can only lead to two outcomes: self-adjustment or collapse under excessive pressure. The CCP’s system is incapable of self-adjustment, as we have witnessed. Therefore, the CCP’s ultimate downfall is inevitable, and the widening social disparities can only lead to collapse,” she said.
