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Cross-Region Fiscal Transfer Puts Poor Regions In More Debt

An article by a Chinese author was circulating on the Internet. The article pointed out that. although China implemented a cross-region fiscal transfer mechanism, the better developed regions provide a large amount of financial aid to the underdeveloped regions to help them develop their economy. This system does not make the poor region prosperous but rather, it puts them in more debt.

The article used Qinghai Province as an example. Qinghai received a “fiscal transfer” (aid) of 147 billion yuan (US$ 21 billion) in 2022, 7.6 times what it received in 2010. However, its disposable income per capita was 27,000 yuan in 2022, only 3.1 times the amount in 2010. This indicates that the “transferred” money didn’t directly get into people’s wallets. The reason was because the receiving regions spent the money on large projects instead, which may not directly lead to improving people’s livelihoods or may cause unnecessary waste. In the meantime, the receiving regions also borrowed additional money to finance those projects (the transferred money was not enough). As a result, the more the “transfer” money comes, the more the receiving region is in debt.

Source: China Digital Times, May 16, 2023