Former Chinese Finance Minister Lou Jiwei recently said in an article that the financial difficulties of the Communist Party of China are not only a short-term problem, but also very difficult in the medium term.
The land media 21st Century Business Herald reported on February 21 that Lou Jiwei, former minister of the Chinese Communist Party‘s Ministry of Finance, recently published an article in Fiscal Research, saying that the CCP’s fiscal revenue growth is slowing down, and it is simply not sustainable to rely on deficits and debt.
Lou Jiwei said that since April 2020, the growth rate of CCP fiscal spending has continued to expand and significantly exceeded the growth rate of fiscal revenue, local fiscal pressure has been increasing, and various regions have continued to maintain fiscal deficit expansion.
In Lou Jiwei’s view, the impact of the CCP’s viral Epidemic and the decline in the potential economic growth rate, especially after the arrival of the population inflection point and the potential economic growth rate inflection point, the total fiscal revenue of the CCP is expected to continue to run at a low level in the next five years, while the pressure on fiscal spending continues unabated.
Lou Jiwei said that since the expansion trend of the CCP’s fiscal spending remains unchanged, there is little room for the government to reduce general spending, and fiscal difficulties will not only be a near-term and short-term matter, but also very difficult in the medium term.
Lou Jiwei said that the issue of CCP government debt is increasingly becoming an important factor affecting future fiscal stability and economic security. From 2009 to 2020, the CCP’s active fiscal policy has been in place for 11 years, with an expanding fiscal deficit and a correspondingly sharp expansion in debt size. Debt payment expenditure as a share of general public budget expenditure has been rising, with the growth rate far exceeding the growth rate of total expenditure.
For example, in 2017, 2018 and 2019, it exceeded the growth rate of total expenditure by 16, 10 and 4.5 percentage points, respectively. 2020, from January to November, debt payment expenditure increased by 16.1% year-on-year, exceeding the growth rate of total expenditure by 15.4 percentage points. The proportion of the central government’s expenditure on debt payment in 2019 will be 13%, and is expected to rise to approximately 15% in 2020, ranking second among all central government expenditures.
According to Lou Jiwei, the local government debt problem is even more prominent than the central government debt problem of the CPC, and the stock of local government debt has been increasing rapidly, and although increasing debt in the short term can ease the pressure of fiscal constraints in special periods, it poses a greater challenge to local fiscal sustainability in the future. In the next five years, most provinces and municipalities are worried about debt sustainability. Rough calculations show that about a quarter of provincial finances more than 50% of their revenues will be used for debt service.
Lou Jiwei said, “The problem of local government debt has not only affected the ability of local governments to provide public services, but also accumulated fiscal and financial risks.”
According to the land media reporter combing, from the issue scale in recent years, the new general debt during 2015~2017 are more than the special debt, since 2018, the issue scale of special debt has increased significantly, and the ratio of special debt in 2020 is close to 80%.
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