News Analysis
China’s Ministry of Finance released financial income and expenditure figures for the first half of 2024, showing a significant year-over-year decline in fiscal revenues and several major tax collections. An economist has identified this as an indicator of an impending financial crisis that plagues the Chinese Communist Party (CCP) authorities at all levels.
Regarding the problems reflected in China’s fiscal balance, Wu Chia-lung, a macroeconomist and chief economics researcher at Taiwan AIA Capital, told the Chinese edition of The Epoch Times that China’s economic activity has lost momentum in consumption, investment, foreign trade, and government sectors.
“This indicates the emergence of six distinct crises within the Chinese economy. In the physical economy, China is encountering an unemployment crisis, a real estate crisis, and a deflation crisis. In the financial area, the country is trapped in debt, capital outflow, and confidence crises,” he said.
Wu said that China’s entire financial system is facing a significant challenge, citing that enterprises and individuals are reluctant to take on any risks, whether in investments, loans, or property purchases, due to the economic downturn.
“The CCP is unable to address those crises and is merely struggling to hold out until they become unsustainable,” he added.
Significant Decline in Financial Revenue
On July 22, the Ministry of Finance released the regime’s financial revenue and expenditures for the first half of 2024. The data show that the national general public budget revenue in the first half of the year amounted to 11.59 trillion yuan (about $1.62 trillion), a year-on-year decrease of 2.8 percent; the national tax revenue amounted to 9.41 trillion yuan (about $1.31 trillion), a 5.6 percent decrease from the same period last year.
In the first half of this year, the central general public budget revenue dropped by 7.2 percent to 5 trillion yuan (about $698 billion) compared to the same period last year.
In addition, most of the major tax items declined. This includes domestic value-added tax revenue, which reached 3.54 trillion yuan (about $494 billion) and decreased by 5.6 percent compared to the previous year.
Corporate income tax reached 2.54 trillion yuan (about $354 billion), representing a 5.5 percent decline.
Personal income tax revenue totaled 735 billion yuan (about $102 billion), representing a 5.7 percent decline.
Customs duty revenue was 118 billion yuan (about $16.5 billion), a 5.2 percent decrease.
Municipal maintenance and construction tax revenue was 256 billion yuan (about $35.8 billion), a 6.7 percent reduction.
The vehicle purchase tax collection totaled 125.3 billion yuan (about $17.5 billion), representing a 5.4 percent decline.
Notably, revenue from stamp duty reached 163.2 billion yuan (about $22.8 billion), a 22.9 percent decrease, of which revenue from stamp duty on securities transactions declined by 54 percent.
Tax revenue related to land and real estate saw a notable decline. Contract tax, for instance, reached 277.9 billion yuan ($38.5 billion), representing a 10.9 percent year-on-year reduction.
Land value-added tax reached 307.4 billion yuan (about $42.5 billion), a 4.3 percent year-on-year decrease.
Revenue from the transfer of state-owned land use rights in the first half of the year amounted to 1.5 trillion yuan (about $213 billion), plummeting by 18.3 percent year-on-year. The figure is halved compared with 2021, the time before China’s real estate bubble burst.
Beijing spent 630.4 billion yuan ($87 billion) on debt service payments in the first half of the year, up 6.5 percent from the previous year.
Thirty-one provinces and municipalities have already issued regulations for central and local government organizations to “tighten their belts,” as reported on July 17 by the CCP’s mouthpiece, People’s Daily. These regulations include budget cuts and reductions in public spending.
Earlier in March, the Ministry of Finance issued a circular requesting the central and local governments to “strengthen budgetary constraints.”
Strategies for Boosting Revenue
Wu noted that the central and local governments face huge fiscal deficits. Therefore, authorities are pursuing a multi-pronged strategy to boost revenue, he said, including limiting capital outflows, taxing corporations, reducing pension funding, and many others.
At the Third Plenum on July 18, CCP policymakers announced plans to “deepen the reform of the fiscal and tax system,” improve the budgetary system, give more autonomy to local governments in managing their tax revenues, and expand local tax sources.
The CCP also proposed postponing the statutory retirement age. Wu said the CCP is reducing the state’s pension expenditures to alleviate its financial woes.
In a July 22 article in the digital newspaper of Discipline Inspection and Supervision, Wang Weidong, chief of the Central Financial Discipline Inspection and Supervision Work Committee, stressed a need to “enhance comprehensive supervision of the financial system to prevent or resolve risks.”
This move is largely aimed at cutting off capital outflows, Wu said, adding that the Communist Party’s top brass would also scrutinize the assets of purged officials.
In a June data release, the Ministry of Finance stated that as of the end of May, the balance of the nation’s local debts is more than 42.38 trillion yuan (about $5.94 trillion).
In Wu’s view, the actual amount of local debt is even larger, with at least a few trillion yuan of hidden debt. For example, some debts are caused by the abandonment of unfinished projects that some local governments financed in a non-transparent manner.
“The CCP system is plagued by two major issues: corruption and local officials’ promotion of infrastructure projects to boost their performance ratings. Despite the lack of economic benefit, they persist in financing construction projects. This has resulted in a widening financial gap and mounting debt,” he said.
Due to Chinese authorities’ past record of underreporting and covering up information, it’s difficult to assess the true scale of the current financial situation.
Financial Crisis Challenges CCP’s Rule
Local governments’ fiscal difficulties are expected to lead to political turmoil within the CCP, according to Wu.
“The Central Committee is likely to devolve power to the local authorities in the future, to allow them to find their way out amid the fiscal crisis … then the situation will likely evolve into [a] kind of localized division,” he said.
He said that the CCP’s systemic corruption has spawned huge debts in local governments and state-owned enterprises, so it has begun to take money from the people in various ways.
Reflecting on Chinese history, Wu said that the demise of a dynasty is usually accompanied by disguised tax increases, large-scale printing of money, deflation, oppression, and then ordinary citizens’ revolts. “The CCP regime faces a similar fate,” he said.
“There will be a financial collapse in general, and finally a fiscal collapse in government, which ultimately leads to the fall of the CCP.”