[Epoch Times November 24, 2021](The Epoch Times reporter Li Xin’an interviewed and reported) This year, China’s local government debt is nearly 30 trillion yuan, and nearly half of the new debt is used to repay old debt. Expert analysis believes that the frenzied issuance of bonds by local governments can only cause the snowball to grow bigger and bigger. This kind of financial operation is a mode of drinking poison to quench thirst.
The Ministry of Finance of China announced the latest data on local government bond issuance on Tuesday (23rd). As of the end of October 2021, the balance of local government debt across the country was approximately 29.7 trillion yuan. From January to October 2021, 6.5 trillion yuan of local government bonds will be issued nationwide.
Wind data shows that as of November 21, the issuance of refinancing bonds was 2.9 trillion yuan, an increase of 53% over the same period last year. In other words, the increase in local bond issuance this year is mainly due to the heavy volume of refinancing bonds.
Refinancing bonds are a type of local government bonds, mainly used to repay the principal of mature local government bonds.
In August of this year, the Ministry of Finance released the “Report on the Implementation of China’s Fiscal Policy in the First Half of 2021” (referred to as the “Report”), stating that the Ministry of Finance will enhance the effectiveness of proactive fiscal policies and speed up the budgetary expenditures in the second half of the year and the issuance of local government bonds.
In addition, some places, including Shanghai and Guangdong, are implementing the practice of issuing new local government bonds to replace hidden debts, which has also increased the amount of local government bonds.
The local government’s crazy borrowing is a bit out of control
Xie Tian, a tenured professor at the Aiken School of Business at the University of South Carolina in the United States, said in an interview with Epoch Times that local debt is a bit out of control. Now that the local government is in deficit, the central government cannot help. The local government borrows on a large scale unscrupulously, and the central government has no way to restrain it. The local government borrows more frantically regardless of the consequences.
According to reports, before 2009, the central government would issue bonds on behalf of the government, which would be controlled by the central government and included in the provincial budget. Since the implementation of the new budget law in 2015, provincial-level local governments began to independently issue local bonds, and the debt immediately increased substantially, reaching 3.8 trillion yuan in 2015, 4 trillion-6 trillion yuan thereafter, and 7 trillion yuan this year. .
Xie Tian pointed out that if a normal government has such a large fiscal deficit, it should cut projects and staff, and find a way to tide over the difficulties. The CCP doesn’t care at all and continues to maintain a huge establishment. The CCP does not have truly independent finances. Although it has independent accounting now, its finances are in fact “unified”, which means that governments at all levels are working together to carve up the property of the Chinese people.
“If the economy is relatively good, taxation is not a big problem; if it is a city with a very backward economy, the debt rate is high, the problem will be bigger. For example, Japan’s debt is also very high, but the Japanese government’s creditworthiness is excellent. The taxation operation benefits are very good, and I am not too worried about this.” He said.
An enterprise person in Xinping County, Yunnan, told The Epoch Times that the main cause of local debt was the vigorous infrastructure. At the beginning, the local government was rich, and the local government was supported by tobacco factories, copper and iron mines, such as Hongta Tobacco Factory. Later, these pillar industries were incorporated into the state from the local governments. There were no pillar industries in the localities, and land sales could not be sold. Taxes were not enough to repay debt and interest. Local teachers, including civil servants, were unable to pay salaries.
The government passed the debt on to the enterprise. “The boss and the government are willing to fight each other. If you don’t cooperate with the government, you can’t make money. The government contracts the project to the enterprise, and the government does not pay the boss. The boss is bankrupt. The migrant worker can sue the boss, but the boss cannot sue the government. “
For example, a local passenger terminal, a private monopoly industry, has filed for bankruptcy. Local fiscal revenues rely on fines. Traffic police can post fines. Now they are contracted out to urban management. There is no hidden income. The health bureau is aware of the fines.
Xie Tian believes that using refinancing bonds to clean up local debts is self-deception, using new debts to repay old debts, and debts are rolled over, which is getting bigger and bigger.
“Debt can be used to stimulate the economy and stimulate real estate development. For example, infrastructure construction stimulates the economy, and the performance is also relatively good. Nowadays, when real estate sales are slowing down and real estate companies have problems, the problem of debt repayment, interest repayment, and principal repayment are problems. It will appear, in the final analysis, there is no restriction or control of power.”
“A normal government, the city government and the provincial government want to borrow money, the city council and the provincial council will not agree, and the people’s public opinion representatives will not agree, and the government will not be allowed to borrow like this crazy. And the provincial people’s congress under the CCP system is good, the city people’s congress Fortunately, there is no power to restrain this government, and when power is not restricted, it uses crazy borrowing and forced apportionment as a means of accumulating wealth.”
Xie Tian believes that in the end the CCP will print money more frantically, and there is no other way. The CCP’s central government has no other way. If the fiscal revenue is not that much, it can only print money. In the end, it will be inflation. Everyone will die together. That’s basically it.
“Those authoritarian governments in the past, especially when they collapsed because of inflation, weren’t that they didn’t know the danger of inflation and the danger of printing money. They knew, but there was no other way but to do so. Now the CCP That’s it. Just don’t care about tomorrow. I have wine now and I am drunk. I’m doing it with this doomsday mentality.”
Viciously inflated local debt
In an interview with The Epoch Times, Chinese economist Li Hengbiao said that in the past two years, the epidemic has been severe, the economy has declined, and local taxation is very limited. Local governments have to stop and have no other tricks but to print money, and they are afraid of excessive inflation. The best way is to issue bonds, especially foreign bonds. It is a mode of drinking poison to quench thirst.
On October 12, 2021, the Shenzhen Municipal Government announced that it has completed offshore RMB local government bonds with an issuance scale of RMB 5 billion.
Li Hengqing said, “The Central Ministry of Finance also issued bonds in Hong Kong through the Bank of China and HSBC, and also issued RMB sovereign bonds in London, as well as US dollar sovereign bonds. It is also possible to issue domestic bonds, and use bank money for government construction. In fact, it is to plug its financial deficits and holes.”
“The central government asked local governments to issue bonds and set up a local government financing platform. Bonds were issued all over the sky. As a result, a lot of companies had major problems some time ago, including state-owned enterprises and even local governments. I can’t even pay interest.”
He pointed out that borrowing itself is also a strategic choice, using other people’s money to develop the local economy and then paying back the money. But the Chinese government is completely different. These officials of the Chinese local government have never thought about repaying the debt when they borrowed.
In China, most local infrastructure projects are developed through cooperation between the government and enterprises through bidding.
He analyzed, “Because the government is an administrative entity, not an economic entity, or a legal person, he allows enterprises to lend, in the name of economic development, and uses government taxation as a guarantee, but many guarantees are invalid, which is called a gray area. So. The government says that it owes many debts, but in fact they are all false, and the gray areas are not counted at all.”
“In Western countries, debts must always be placed on the liability (liability) piece, including actual debts and guaranteed debts. Chinese local governments are unwilling to repay the money, and they have been snowballing. The debts of Chinese local governments have been vicious in the near future. Expansion is here.”
In 2014, the Ministry of Finance published the “Measures for the Cleaning up and Screening of Local Government Stock Debts Included in Budget Management” and started to clean up local stock debts.
Li Hengqing pointed out that it is not clear how much the top CCP owes local government debt, and it is all gray. The balance sheets of various places in China are compiled from the figures reported by the governments, and the figures from the National Bureau of Statistics are compiled even more. They are fraudulent. They don’t know how much money they owe to the outside world.
“As a result, the rectification has not yet started, and the economy is getting worse and worse. Now there is no time to rectify, and I went back. You have the ability to do everything you can to issue debts. The wages are too long. What if the people rebelled? If you issue a debt, you won’t have money to spend, and you can just get along. It’s the same idea now.”
Li Hengqing believes that China’s debt crisis is imminent. Because the scale of debt is too large, and all corporate debt and government debt are added together, he estimated that local debt has exceeded 300 trillion yuan, which is close to 400 trillion yuan.
“In addition, the CCP officials do not use a market economy to manage the country. They just pat their heads and think about it. There is no good result.” He said.
Editor in charge: Gao Jing#
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