Economy/Resources - 5. page

On August 5th, Yicai (China Business Network) cited public data saying that, in the first seven months of this year, China’s local governments issued approximately 4.2 trillion yuan (US$ 590 billion) worth of bonds, a year-on-year decrease of about 16 percent. Among them, refinancing bonds totaled around 2 trillion yuan, primarily used to repay the principal of maturing government bonds or existing debt. This means local governments were essentially “borrowing new debt to repay old debt.” Additionally, 2.2 trillion yuan of new bonds were issued (i.e. bonds not used to pay off old debts), comprising 1.8 trillion yuan in new special bonds and 400 billion yuan in new general bonds.

Source: Lianhe Zaobao, August 8, 2024
https://www.zaobao.com.sg/realtime/china/story20240808-4443056

The Chinese government is facing a fiscal crisis as plummeting land sales revenue has severely strained local government budgets. To cope with this, local governments across China have implemented austerity measures, including limiting air conditioning temperatures, requiring public officials to dine in government cafeterias, and restricting use of official cars.

These “belt-tightening” policies have also led to widespread pay cuts for civil servants and other public sector workers. Public sector employees report salary reductions of 20-30%, with the most developed regions seeing the biggest cuts. Annual bonuses have also been eliminated in many cases. This is seen as the first wave, with pay cuts expected to spread to state-owned enterprises and other institutions.

Experts attribute this fiscal crunch to an over-reliance on land sales revenue by local governments, which has dried up due to the property market slump. Land sales revenue plummeted 55.7% in the first half of 2024 compared to 2019. Tax revenue has also been under pressure due to declining corporate profits.

To address this, policymakers have promised to reform the fiscal system by increasing the share of tax revenue for local governments and expanding their taxing powers, such as by potentially shifting the consumption tax to the local level. However, experts warn that this may incentivize local governments to promote polluting or unhealthy industries to boost revenues. Tackling local government debt will also be crucial to putting their finances on a sustainable footing.

More directly, some suggest that China should raise the share of fiscal revenue to GDP, which at 26% is lower than advanced economies and even other developing countries. Implementing a property tax is seen as one option to boost local government revenues.

Source: BBC, August 19, 2024
https://www.bbc.com/zhongwen/simp/chinese-news-69274197

Yicai, a newspaper based in China, discussed the issue of local governments falsely inflating their fiscal revenue figures, as revealed in recent audit reports across the country. This has become a persistent problem, motivated by the desire to bolster performance metrics for government officials.

The article cites several examples from audit reports in different provinces. In Guangdong, 3 cities and 3 counties were found to have increased fiscal revenue by 17.101 billion RMB through state-owned enterprise asset purchases. Hebei’s audit found 1 city and 7 counties had artificially inflated revenue by 2.495 billion RMB through fake asset disposals and overpayments. Audits in Sichuan, Qinghai, Inner Mongolia, and Liaoning also uncovered hundreds of millions to billions of RMB in falsified revenue.

Experts argue this practice conceals true fiscal deficits, amplifies local financial risks, and distorts central government’s understanding of local fiscal conditions, potentially leading to misguided policymaking and damaging government credibility.

To address the problem, the report suggests that local governments realign performance incentives away from rigid revenue targets. Ongoing tax and fiscal reforms to bolster local fiscal autonomy could also help reduce the pressure to fabricate numbers. Stronger oversight and strict accountability for responsible officials are also recommended.

The article also notes audit reports have proposed improving revenue collection management, data sharing across departments, and plugging institutional loopholes to ensure comprehensive and accurate fiscal revenue reporting.

Source: Central News Agency, August 20, 2024
https://www.cna.com.tw/news/acn/202408200177.aspx

China’s State Administration of Foreign Exchange released data on China’s international balance of payments for the period April-June, showing the first negative growth in foreign direct investment (FDI) in three quarters. Due to business contraction, new investment in China by foreign entities (e.g. construction of factories) was lower than capital withdrawals from China.

Foreign companies’ direct investment in China decreased by $14.8 billion, with outflows exceeding inflows for factory construction and M&A funds. This capital outflow surpassed the $12.1 billion in negative growth recorded in July-September 2023, which was the first quarter of negative growth since collection of such statistics began in 1998.

China’s economic stagnation, caused by insufficient domestic demand, has reduced foreign investment interest. The turning point for potential investors was Beijing’s enforcement of strict COVID-19 controls during the years following the start of the pandemic.

The Shanghai lockdown in spring 2022 caused economic turmoil, leading to a significant decline in FDI during the period April-June 2022. Although strict COVID policies ended in January 2023, China’s economy has not fully recovered, now suffering from weak domestic demand linked to the country’s current real estate slump.

China’s economic recovery remains weak, with Q2 2024 GDP growth slowing to 0.7% quarter-on-quarter, down from 1.5% in Q1. Net debt outflows from foreign-invested enterprises in China reached $22 billion, the highest since comparable data became available in 1998, indicating that overseas parent companies are withdrawing funds from their local subsidiaries.

Source: Nikkei, August 12, 2024
https://zh.cn.nikkei.com/china/ceconomy/56392-2024-08-12-10-14-19.html

China faces a severe unemployment challenge among young people, even those who have graduated from college.

Recently, the University of Science and Technology of China (USTC) in Anhui advertised a requirement of “master’s degree or above” for a security guard position. This has sparked mems and comments such as “A master’s degree just to guard the gate.” Also, more and more Chinese universities have started to extend the Master’s program from 2 years to 3 years.

Chongqing city has taken a new approach this year by assisting university graduates in securing international employment. Over 70 recent graduates from eight universities in Chongqing and Sichuan province have been referred by a state-owned enterprise to work in the middle east country Oman. According to Chongqing Daily, this international labor cooperation scheme is promoted by Chongqing Foreign Enterprise Service Co., Ltd., a company affiliated with the state-owned Chongqing Development Investment Company. Positions offered by Omani companies mainly involve technical roles and warehouse management positions, with benefits including food and accommodation. Monthly salaries range from 12,000 to 18,000 yuan (US$ 1,670 to 2,510), with 14 months’ pay and two free round-trip tickets annually. Employees can choose to renew their contracts after two years of employment. The graduates going to Oman are from institutions such as Chongqing Normal University and Chongqing Industrial Vocational and Technical College. Many of these graduates majored in chemical engineering, with some others majoring in electrical automation or English.

Source: Radio Free Asia, July 30, 2024
https://www.rfa.org/cantonese/news/jobs-07302024080415.html

According to recent statistics, China experienced a significant decline in marriage registrations during the first half of 2024. The country recorded 3.43 million marriages, which is 498,000 fewer than the same period in 2023, marking a new low in recent years.

The data, reported by The Paper citing the Chinese Ministry of Civil Affairs’ Q2 2024 civil affairs statistics, also showed 1.274 million divorce registrations in the first two quarters of 2024. This represents a decrease of 43,000 divorces compared to the first half of 2023.

This downward trend in marriages continues a pattern observed over the past decade. Marriage rates in China have been declining since 2014, with notable milestones including:

– 2019: Marriages fell below 10 million annually
– 2021: Dropped below 8 million
– 2022: Reached a low of 6.835 million

However, there was a slight uptick in 2023 with 7.68 million marriages registered.

The current figures for the first half of 2024 suggest that the marriage rate in China may continue to face challenges, despite the brief recovery observed in 2023.

Source: Central News Agency (Taiwan), August 4, 2024
https://www.cna.com.tw/news/acn/202408040114.aspx