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China’s Shenzhen and Many Other Wealthy Cities and Provinces Will Cut Salaries While Foreclosures on Houses Soar

According to several mainland media reports in May, Shenzhen, the richest city of China, is facing a second wave of significant salary cuts for civil servants. The annual salaries will be reduced to less than 160,000 yuan a 36 percent drop (6.65 Chinese yuan = 1.0 US $). Last year, (2021) the salary was down to 250.000 yuan from the original amount of 300,000 yuan. Many foreclosed house will instantly appear in the Shenzhen property market.

On May 26, a netizen who is a first-level Chinese teacher in Shenzhen Middle School posted,  “Our company asked each of us to fill out a form this morning that we would, in principle, voluntarily reduce our wages.”

Not only Shenzhen, but many other of China’s wealthiest cities and Provinces in China also had already implemented a salary cut plan for civil service positions in 2021. The hearts of government officials have begun to fluctuate. Especially since last December, civil servants in Jiangsu, Zhejiang, Guangdong, Fujian, Shanghai and other provinces and cities have successively received notices of salary reductions, with a drop of about 20 to 30 percent.

The current wave of salary cuts is not only for civil servants, but also for teachers and other positions within the system. In addition, Shenzhen, Hangzhou, Suzhou, Qingdao and other coastal cities within the system have also reduced salaries. This wave of pay cuts are universal, and the higher the income, the greater the reduction.

Due to the extreme COVID-19 epidemic prevention and control measures, China’s economy has suffered a sharp downturn and the finances are tight. The epidemic prevention has lasted for several years and most enterprises have stopped production. Therefore, they will report the loss of production, and they will not pay taxes. Real estate is also all but dead.

The COVID-19 epidemic has caused sluggish consumption, disrupted supply chains, and has had a huge impact on both production and demand, which has been reflected in finances. In April 2022, the national fiscal revenue was about 1.2 trillion yuan, a sharp drop of 41.3 percent from the same period last year. Among them, tax revenue fell sharply by 47.3 percent year-on-year.

The fiscal revenue has decreased by a large amount, and the epidemic prevention funds have increased by a large amount, so the government must reduce expenditures. The massive pay cuts have not only caused turmoil in the hearts of the people, but also highlighted the sluggishness of China’s economy. The closely related effect of salary reductions suggests a wave of mortgage breaks is coming! At the beginning of 2022, 200,000 homeowners abandoned their houses and stopped paying their mortgages.

There were 9,000 foreclosed homes in 2017. By the end of 2021, the total number of foreclosed homes has soared to 1.68 million.

Real estate is deeply tied to the economy and household wealth, and the resulting financial risks are growing. A downturn in the economy, lower personal incomes or job losses make it a desperate choice for those who have a mortgage. Should they abandon a home and cut off mortgage payments?

The massive wave of salary cuts in Shenzhen and Shanghai, the regions with the highest fiscal revenues in China, as well as in the Pearl River Delta and Yangtze River Delta has made it possible for the outside world to conclude that both the central and local finances of the CCP regime are in serious trouble, with revenues falling short of expenditures, (i.e., People are running out of money).

From the published fiscal revenue in April this year, only 6 out of 21 provinces and municipalities had increased revenue year-on-year. Most of them are mineral resource-rich areas. 14 provinces and municipalities, mostly economically developed manufacturing and service industries, had decreased revenue; and only one province Fujian had remained flat.

The precipitous economic decline caused by the CCP’s harsh COVID-19 control has resulted in the finances of both the central and local governments of the CCP to fall short of their budgets, which has forced them to introduce salary cuts, although that may likely to spark public anger.

The authorities and institutions that have been increasing their salaries and benefits for more than two decades and have had years of living a good life are now preparing for hard times. The first step is to reduce salaries and benefits and compress the administrative expenses. If they still can’t break even, the second step will be to lay off employees just like many enterprises have done in recent years.

Source: Aboluowang, June 4, 2022.