Analysis: The CCP’s Political Game of Tightening Belts
News AnalysisThe Chinese Communist Party (CCP) has urged local governments to curb spending amid the current financial strain. Experts believe this political strategy will not help solve China’s economic difficulties but only accelerate the economic decline and that the CCP’s main concern is to maintain its ruling authority, and it has neglected its role in fostering economic development.Tightening Belt Political PlayPremier Li Qiang’s statement in his Government Work Report in March, urging “all levels of government to get used to tightening their belts,” set the stage for the Chinese Ministry of Finance to issue directives mandating fiscal austerity measures at both central and local levels.These directives urge local officials to swiftly implement measures to curb “three public” expenses: expenditures on domestic and overseas trips, vehicle acquisition and operation costs, and official hospitality expenses, along with other stringent financial disciplines.Wu Jialong, a macroeconomist based in Taiwan, highlighted the severe fiscal crises faced by all levels of government.“Amid financial constraints, the regime prioritizes funding for military, armed police, and public security personnel,” noted Mr. Wu, while also “reducing temporary contracts and fostering mutual support among permanent staff to cut costs.”Mr. Wu said that the current financial difficulties stem from local governments heavily indebting themselves for infrastructure projects aimed at currying favor and securing promotions, resulting in a debt-fueled economic model.Related StoriesHowever, many projects, such as highways and bridges in remote regions like Guizhou, lack economic viability, leading to burdensome debts and additional maintenance costs.Due to China’s real estate market crisis, local governments have suffered approximately a 40 percent loss in fiscal revenue as a result of a shift from reliance on land sales. According to Mr. Wu, this reliance traces back to the late 1990s during Premier Zhu Rongji’s tenure through a financing mechanism known as land finance, which has persisted for over two decades.With dwindling land sales revenue, local and central governments have plunged into fiscal crises. “It’s as simple as that,” remarked Mr. Wu.American economist Davy J. Wong added that the decline in exports, foreign investment, and real estate—the three pillars of China’s finances—further compounds the Communist nation’s financial woes.He noted that from 2012 to 2020, civil service salaries in China soared three to fourfold, aimed at consolidating support amid anti-corruption efforts. “Now, such measures are being reversed, as they are no longer deemed necessary for maintaining political stability,” stated Mr. Wong.Belt-Tightening Breeds HardshipExperts argue that authorities should prioritize increasing revenue and reducing debt for local governments. They believe belt-tightening is unlikely to significantly alleviate fiscal pressure and instead risks exacerbating economic contraction, setting off a vicious cycle.Mr. Wu said that as public-sector spending declines, private-sector incomes naturally decrease, leading to an overall decline in demand. Thus, further contraction is perpetuated, a phenomenon recognized in macroeconomics as the “paradox of thrift,” which echoes the theories of renowned economist John Maynard Keynes.“In times of economic hardship, Keynes advocated not for belt-tightening but rather for increased spending to stimulate overall demand,” added Mr. Wu.Mr. Wong also believes that if the CCP genuinely seeks to revitalize the economy, it should foster an environment conducive to private enterprise. However, the current trend is quite the opposite, with private capital being suppressed.In a March press conference, Lan Fo'an, the Chinese Minister of Finance, asserted that belt-tightening aims to “pool financial resources to accomplish major tasks” and ensure “people’s livelihoods.”Mr. Wong, however, questioned the nature of these “major tasks,” believing they primarily serve significant political agendas such as the Belt and Road Initiative. He claims that actions benefiting “people’s livelihoods” would typically entail increased welfare or reduced taxes, “but we haven’t seen that yet,” he remarked.Mr. Wu believes it’s attributed to the simple fact that “there’s no money left.” He predicted that due to fiscal crises and the inability to generate new income sources, various local governments may resort to imposing arbitrary fines or raising prices for public services such as utilities.Recently, the Chinese Ministry of Finance released Q1 tax and non-tax revenue figures: national tax revenue amounted to 4.91 trillion yuan ($680 billion), marking a year-on-year decrease of 4.9 percent, while non-tax revenue reached 1.17 trillion yuan ($160 billion), representing a year-on-year increase of 10.1 percent.Guizhou, a southwestern province, reported that total general public budget revenue in Q1 reached 57.2 billion yuan ($7.94
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News Analysis
The Chinese Communist Party (CCP) has urged local governments to curb spending amid the current financial strain. Experts believe this political strategy will not help solve China’s economic difficulties but only accelerate the economic decline and that the CCP’s main concern is to maintain its ruling authority, and it has neglected its role in fostering economic development.
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Tightening Belt Political Play
Premier Li Qiang’s statement in his Government Work Report in March, urging “all levels of government to get used to tightening their belts,” set the stage for the Chinese Ministry of Finance to issue directives mandating fiscal austerity measures at both central and local levels.
These directives urge local officials to swiftly implement measures to curb “three public” expenses: expenditures on domestic and overseas trips, vehicle acquisition and operation costs, and official hospitality expenses, along with other stringent financial disciplines.
Wu Jialong, a macroeconomist based in Taiwan, highlighted the severe fiscal crises faced by all levels of government.
“Amid financial constraints, the regime prioritizes funding for military, armed police, and public security personnel,” noted Mr. Wu, while also “reducing temporary contracts and fostering mutual support among permanent staff to cut costs.”
Mr. Wu said that the current financial difficulties stem from local governments heavily indebting themselves for infrastructure projects aimed at currying favor and securing promotions, resulting in a debt-fueled economic model.
However, many projects, such as highways and bridges in remote regions like Guizhou, lack economic viability, leading to burdensome debts and additional maintenance costs.
Due to China’s real estate market crisis, local governments have suffered approximately a 40 percent loss in fiscal revenue as a result of a shift from reliance on land sales. According to Mr. Wu, this reliance traces back to the late 1990s during Premier Zhu Rongji’s tenure through a financing mechanism known as land finance, which has persisted for over two decades.
With dwindling land sales revenue, local and central governments have plunged into fiscal crises. “It’s as simple as that,” remarked Mr. Wu.
American economist Davy J. Wong added that the decline in exports, foreign investment, and real estate—the three pillars of China’s finances—further compounds the Communist nation’s financial woes.
He noted that from 2012 to 2020, civil service salaries in China soared three to fourfold, aimed at consolidating support amid anti-corruption efforts. “Now, such measures are being reversed, as they are no longer deemed necessary for maintaining political stability,” stated Mr. Wong.
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Belt-Tightening Breeds Hardship
Experts argue that authorities should prioritize increasing revenue and reducing debt for local governments. They believe belt-tightening is unlikely to significantly alleviate fiscal pressure and instead risks exacerbating economic contraction, setting off a vicious cycle.
Mr. Wu said that as public-sector spending declines, private-sector incomes naturally decrease, leading to an overall decline in demand. Thus, further contraction is perpetuated, a phenomenon recognized in macroeconomics as the “paradox of thrift,” which echoes the theories of renowned economist John Maynard Keynes.
“In times of economic hardship, Keynes advocated not for belt-tightening but rather for increased spending to stimulate overall demand,” added Mr. Wu.
Mr. Wong also believes that if the CCP genuinely seeks to revitalize the economy, it should foster an environment conducive to private enterprise. However, the current trend is quite the opposite, with private capital being suppressed.
In a March press conference, Lan Fo'an, the Chinese Minister of Finance, asserted that belt-tightening aims to “pool financial resources to accomplish major tasks” and ensure “people’s livelihoods.”
Mr. Wong, however, questioned the nature of these “major tasks,” believing they primarily serve significant political agendas such as the Belt and Road Initiative. He claims that actions benefiting “people’s livelihoods” would typically entail increased welfare or reduced taxes, “but we haven’t seen that yet,” he remarked.
Mr. Wu believes it’s attributed to the simple fact that “there’s no money left.” He predicted that due to fiscal crises and the inability to generate new income sources, various local governments may resort to imposing arbitrary fines or raising prices for public services such as utilities.
Recently, the Chinese Ministry of Finance released Q1 tax and non-tax revenue figures: national tax revenue amounted to 4.91 trillion yuan ($680 billion), marking a year-on-year decrease of 4.9 percent, while non-tax revenue reached 1.17 trillion yuan ($160 billion), representing a year-on-year increase of 10.1 percent.
Guizhou, a southwestern province, reported that total general public budget revenue in Q1 reached 57.2 billion yuan ($7.94 billion), a 7 percent growth. This included tax revenue of 33.9 billion yuan ($4.71 billion), a modest growth of 0.8 percent. Meanwhile, non-tax revenue reached 23.3 billion yuan ($3.23 billion), indicating a significant increase of 17.6 percent.
Liaoning, a coastal province in Northeast China, also reported the total general public budget revenue in Q1 reached 893.3 billion yuan ($123.83 billion), a growth of 7.9 percent over last year, including various tax revenues of 532.6 billion yuan ($73.83 billion), a decline of 2.6 percent, and non-tax revenue amounted to 360.7 billion yuan ($50 billion), a growth of 28.2 percent. The authorities explained this growth is mainly due to the activation of existing assets in various regions, as well as the enforcement of confiscation and penalty revenue according to law.
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Ailing Chinese Economy
Mr. Wu believes that all it takes for the CCP to uplift the economy is to relax its political grip, reevaluate institutional and ideological values, mend relations with the United States, and integrate into the international system. This, he said, would subsequently boost employment, tax revenue, and foreign exchange.
“However, once the CCP embraces American values, society will become more open and diverse. The CCP may fear losing control despite economic improvements. Essentially, it behaves like a bandit, demanding protection money all the time, forcing everyone to accept its leadership,” added Mr. Wu.
He asserted that the economy has always posed a challenge to the CCP. A thriving market economy acquires freedoms, property rights, and protections, all of which run counter to CCP ideology. The economy is inevitably sacrificed to safeguard its dictatorship and left to crumble.
Mr. Wu credits China’s past economic prosperity to American support, not a result of CCP leadership. By opening up to the United States and allowing American capital, technology, and orders to flow in, jobs and wages were provided for the Chinese populace.
“What does ‘open up’ entail? Is it opening up to the Soviet Union and Eastern Europe? Certainly not. Opening up means embracing capitalism. Capitalist societies emphasize market competition and innovation. The CCP’s ideology revolves around control through power, a fundamentally different system and concept,” said Mr. Wu.
He underscored that since its inception, the CCP’s trajectory has been clear: socialism is unsustainable, and the economy will inevitably collapse under its authoritarian rule.
Throughout its history, the CCP has engaged in rent-seeking, exchanging power for benefits, akin to a mafia mentality. “It’s about dividing the pie rather than expanding it,” quipped Mr. Wu.
He pointed out that Deng’s reform and opening up strategy deceived Americans, allowing the regime to globalize and channel Western resources to the privileged class within the regime.
“The privileged class, including second-generation elites and the military, have subsequently tightened their control over society, from Xinjiang to Tibet, Hong Kong, and Taiwan.”
Song Tang, Yi Ru, and Xiong Bin contributed to this report.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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