China’s “ghost cities” appear in many places due to economic downturn.
The risk of local government debt has become a concern in the context of declining revenues due to the impact of the Chinese Communist Party’s virus epidemic and the deterioration of Sino-US relations. Since the fourth quarter of this year, a series of debt defaults by Chinese state-owned enterprises have caused the market to become increasingly concerned about the solvency of local governments. Experts point out that China’s local government debt is high, and decades of government fiscal deformities related to economic policies, and now we should be wary of local governments and the central government dumping each other and the situation getting out of control.
On Tuesday (8), officials from the Chinese Communist Party’s Ministry of Finance warned that the local government debt ratio will approach the alert line by the end of this year and may cross into the alert zone next year, to prevent the continued accumulation of elevated debt risks. In response, Professor Xie Tian of the Aiken School of Business at the University of South Carolina said in an interview with Voice of Hope that the sharp rise in China’s local government debt is now caused by the economic recession and the cold real estate market.
I think this local debt in China is now attracting the direct and high attention of the central government, a little bit of vigilance, the reason is that it is increasing very fast, has been intensifying. And then, of course, we know that this local government debt, a lot of it is the real estate, real estate market pull, land sales, land acquisition, to engage in this kind of capital construction to promote GDP, thus causing the debt to rise. Now if the economic growth decline, into recession, then these real estate market we also know into the situation of the price is not marketable, today simply can not sell. If it does not sell, those, a large number of those loans related to real estate, it will enter a situation of bad debt. And these debts, it has been rising, while the ability to repay the loan is declining. Many of the debts, slowly its repayment term will come to an end, so this is the problem we see today.
The Chinese government at all levels has been relying on investment to drive the economy for years, leading to soaring government debt. In July, the Japanese media Nikkei Shimbun reported that the total debt of local governments in the Communist Party of China was about 67 trillion yuan by the first half of this year, according to the China Credit Rating. The report said that the rapidly soaring local government debt of the Communist Party of China could turn into an untimely bomb for China’s economic recovery and financial markets. Xie Tian thinks it’s worth noting that the magnitude of the local government debt crisis is now seen, and a situation has emerged where local governments and the central government are dumping each other and shirking their responsibilities.
[Recording]: This problem is related to the Chinese Communist Party’s monstrous policy of using real estate to boost the economy in the past decades, and also related to that economic downturn. Now the Chinese Communist Party has officially released the news, it seems to say that the scale of the bad debts, the bad debts of local governments is too large, the quantity is too large, the breadth is also very large, now it seems that the central government may not be able, I think not able and willing to help these local governments. I think this thing may now mean that the local governments may have wanted to pull the CCP and the central government together, pulling up to be the backer, but now they may be dumping each other, which may be a bigger problem.
Regarding the “internal economic circulation” advocated in the economic policy proposed by the CCP in 2020, Xie Tian believes that there is no future for the “internal economic circulation. At the same time, because of the high dependence of China’s economy on other countries, a complete “internal economic cycle” is not possible either. It is not that the Chinese Communist Party does not want an “external circulation” of the economy. A lack of “external circulation” and a lack of ability to generate foreign exchange would be a major blow to China’s economy. The “internal circulation” is just a self-justifying and self-congratulatory argument.
The “internal economic cycle” is actually the result of the Chinese Communist Party’s knowledge that the export market is sluggish, that is, the original export market is shrinking, and that the Chinese Communist Party now sees that some supply chain enterprises in China, whether from Japan, South Korea, Taiwan or the United States, are export-oriented. The original foreign trade export-oriented, now these industrial chain enterprises are rapidly moving out of China, and the speed of moving out is getting faster and faster, many industrial chain, companies or orders are flowing to Vietnam, India and other countries. In this case, it is actually this, foreign trade, import and export, as a pillar of the economy, is now basically broken, then these it can only rely on the so-called “internal circulation”. But the internal circulation, “internal circulation” towards the original “self-reliance”, this regressive old road it, I’m afraid, will not be accepted by the people. After all, China’s economy is actually highly dependent on other countries, and it is impossible to completely “internal circulation”.
It does not matter how much it exports, the ability to earn foreign exchange is how much, China still has a lot of things to buy. At least to buy food. China has purchased more than 80% more grain in the past 11 months, this year than in previous years, and the purchase of grain requires foreign exchange. Buy some medical, medical equipment, buy computer spare parts, even high-speed rail ah those, these sophisticated technical equipment and electronic equipment, which need foreign exchange, and now it and the ability to generate foreign exchange is not enough, then this will be a big blow to the Chinese economy.
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