Skip to content

Economy/Resources - 6. page

China’s Fiscal Woes: Local Governments Tighten Belts as Land Sales Revenues Plunge

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

Local Governments in China Accused of Inflating Fiscal Revenues Through Falsification

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

Lianhe Zaobao: MSCI Index Removes 60 Chinese Stocks

Singapore’s primary Chinese language newspaper Lianhe Zaobao recently reported that MSCI, a stock market index compilation company, removed 60 Chinese stocks from its indices. The stocks will be dropped both from the MSCI China Index as well as from the MSCI All Country World Index. This is likely a reflection of global investors’ cautious attitude towards Chinese A-shares. The latest adjustment by MSCI may further intensify the downward pressure on China’s stock market.

The MSCI August Index Review results showed that the MSCI China Index added two component stocks, both A-shares, while excluding 60 constituent stocks, including five Hong Kong HKSE stocks and 55 Mainland A-shares.

China’s economic outlook is increasingly bleak, with the country’s stocks at risk of losing their  dominance in emerging market portfolios to rivals such as India and Taiwan. After MSCI’s adjustments, the number of MSCI China Index constituent stocks has been reduced from 655 to 597, comprising 432 A-shares, with a weight of 15.2 percent; 148 Hong Kong stocks, with a weight of 75.3 percent; 14 U.S. Chinese-concept stocks, with a weight of 9.2 percent; and three B-shares with the weight of 0.2 percent.

Sources:

Lianhe Zaobao, August 13, 2024
https://www.zaobao.com.sg/news/china/story20240813-4481962

Bloomberg, August 13, 2024
https://www.bloomberg.com/news/articles/2024-08-13/msci-trims-china-s-index-presence-by-removing-dozens-of-stocks

Talkie: Another Chinese Chat App Making Waves in the U.S. Market

As TikTok faces potential banishment from the U.S., chatbot app Talkie (also developed by a Chinese company) has become a sensation in America. With more than 10 million downloads on the Google Play Store, Talkie’s audience is similar to that of TikTok, predominantly young people, including many American youths. As of this June, Talkie ranks fifth on the list of entertainment app downloads in the U.S. Globally, it boasts around 11 million active users, with over half in the U.S., and many in the Philippines, the U.K., Canada, and other countries.

Since the app’s launch about a year ago, it has rapidly gained popularity. The app features AI technology (large language models and image generation), providing users with a customized role-play chat interaction featuring virtual representations of celebrities such as Donald Trump, Taylor Swift, and Elon Musk, as well as cartoon characters or fictional characters made up by users of the app. The app can be used to simulate conversations with virtual romantic partners.

Public information shows that Talkie is a startup based in Singapore, but its true parent company is MiniMax, headquartered in Shanghai. MiniMax is recognized as one of the “Four Little AI Dragons,” which are the four largest unicorns (large, privately-held startup companies) in China’s tech sector.

Source: Epoch Times, August 5, 2024
https://www.epochtimes.com/gb/24/8/5/n14305303.htm

Foreign Direct Investment in China Declines Amid Economic Challenges and Capital Outflows

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 Sends College Graduates Overseas to Alleviate Unemployment Pressure

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

China’s Marriage Rate Hits New Low in First Half of 2024, Continuing Decade-Long Decline

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

China Extends Grad School Duration: Education Push or Disguised Jobs Program?

In recent years, many Chinese universities have extended their graduate programs from two to three years, citing reasons such as “improving the quality of graduate education.” However, some observers link this change to rising youth unemployment rates, viewing it as a temporary measure to address job market pressures.

Multiple universities, including Guangxi Normal University, Shenyang University of Technology, and Xi’an International Studies University, have announced extensions to their master’s and doctoral programs starting from 2025. The adjustments affect various disciplines, including chemistry, education, literature, and foreign languages.

Experts argue that postgraduate education emphasizes specialization and depth, requiring higher quality standards. They claim that extending the study period provides more space to meet these requirements and optimize the training process.

Supporters of the change suggest it allows for strengthened classroom teaching, improved education quality, and more opportunities for students to engage in practical experiences. It also gives students more time for thesis writing and job hunting.

Critics of the move acknowledge that this extension may be linked to China’s changing employment landscape, with many graduates opting for “slow employment.” While the longer study period may help students find more suitable jobs, some argue that it shouldn’t be a one-size-fits-all approach or merely a stopgap measure to address social employment pressures. They suggest allowing capable and willing students to graduate early.

Source: Central News Agency (Taiwan), July 25, 2024
https://www.cna.com.tw/news/acn/202407250355.aspx