The Chinese Government announced, on Friday, November 8, a plan worth 10 billion yuan (1.3 billion euros) to rescue local authorities exhausted after decades of massive spending on infrastructure and a real estate crisis that has weighed on their income. To finance the roads, stations and neighborhoods that have driven Chinese development, without exceeding on paper the debt ceilings set by the central government, Chinese cities and provinces have created external debt companies, such as infrastructure investment and construction companies. in Tianjin, a major port in the northeast. Multiplied by the number of provinces and cities in the second largest economy on the planet, this system has made local debt difficult to read and control.
The Finance Minister announced on Friday that local authorities will be able to issue bonds worth 780 billion euros over three years to integrate the debt hidden in their own accounts, and will still be able to benefit from 520 billion euros. of bonds – initially planned for future infrastructure projects – to redeem. Chinese Finance Minister Lan Fo’an said he wanted this. “defuse the debt bombs” to allow local authorities to focus on “the development and improvement of the service”.
Since 2020, the real estate crisis – part of Beijing’s desire to deflate developers’ over-indebtedness – has devastated local government finances. An important part of their income came from the transfer of rural land to build new buildings. Since the new real estate market came to a standstill, this important influx of money has disappeared.
As a direct result, cities are increasing the number of tax audits to stabilize their revenues, asking certain businesses and wealthy households to “self-inspect” for back taxes and have supporting documents ready for inspection. Along the same lines, in January, the central government pointed out the drift of the small canton of She, in the northeast, which, in 2023, committed largely unjustified traffic violations and forged the signatures of nearly 2,000 motorists allegedly stopped to fill your accounts.
Proper dosage
To implement Friday’s plan, China had to go through a meeting of the 175 members of the Standing Committee of the National People’s Congress of the Chinese Communist Party (CPC). It should have been held at the end of October, but was postponed until this week for a reason that is now obvious: the US presidential elections, which will force China to adapt its strategy. During the campaign, Donald Trump promised to impose customs tariffs of 60% on the entry of Chinese products into the United States. Even a more modest increase in US customs duties would hit Chinese factories hard.
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