On January 31, Zhou Hongsheng, the director of Luxinan Hospital, a private hospital in Yanggu County, Shandong Province, stated: "Our hospital has over 700 staff members. Currently, we owe wages to a total of 601 employees. The total amount of unpaid wages, including social security, exceeds 45 million yuan. Some employees have been owed for 3 months, some for 8 months or 6 months, and the longest arrears exceed a year." (Video screenshot)
[People News] On October 14, Tsinghua University professor and government policy advisor Li Daokui revealed in a Bloomberg TV interview that debt owed by local governments to companies and employees amounts to 10% of China’s GDP.
China's GDP in 2023 is projected to be 126 trillion yuan, which means 10% translates to 12.6 trillion yuan, surpassing a third of the combined revenue from the general and government fund budgets—a colossal figure.
Since late September, the CCP has pivoted sharply in economic policy, employing large-scale stimulus measures, including an 800 billion yuan stock market injection, interest rate cuts, reserve ratio reductions, and the issuance of ultra-long-term special government bonds, to attempt to rescue China’s economy from severe deflation.
However, the central government’s stimulus efforts are primarily directed at enabling local governments to manage debt, rather than stimulating internal demand among companies and residents.
When asked by Bloomberg about how the CCP should restore market confidence and where funds should be directed, Li Daokui responded, “Let me give you a simple answer. Local governments have postponed or delayed massive payments. They owe contractors and employees—directly or indirectly—a sum totaling 10% of GDP. I was myself shocked at this figure. I’m talking about 10% of GDP in delayed payments to various companies and workers. No wonder consumers aren’t willing to spend—they haven’t been paid!”
Li Daokui also frankly stated, “Local governments shouldn’t be engaging in too much infrastructure construction. Instead, they should pay everyone who has worked for them, including those who worked tirelessly during the pandemic. Pay them. Give them cash. This is more than honoring contracts and respecting the spirit of good contracts, the foundation of a market economy—it is also short-term economic stimulus. In other words, the largest economic stimulus would be for local governments to settle their arrears with companies and employees. That’s it. This one action alone, amounting to 10% of GDP, would be highly effective.”
Discussing the A-shares rocket-like stimulus policy, he gave a not-quite-fitting analogy, saying, “Imagine you’re an insurance salesman. You collect 20,000 yuan in premiums every year for 10 years, amounting to 200,000 yuan. But in the 11th year, there’s a major accident, and you pay out 150,000 yuan. Now imagine that in the current situation, after collecting 20,000 yuan in premiums, there are two major accidents in one year—one at the beginning and one during the National Day holidays, each requiring a 150,000 yuan payout. Originally, it was a once-in-a-decade occurrence; now, it’s twice in one year…”
As a former CCP-affiliated economist and policy advisor, Li Daokui has now spoken some truths. However, is Xi Jinping willing to heed Li Daokui’s words? Likely not.
Recently, Finance Minister Lan Fo’an and Vice Minister Liao Min indicated that the Ministry of Finance will implement the largest debt-resolution measures for local governments in recent years. The goal of these economic stimulus measures is to increase macroeconomic support to achieve the 5% GDP growth target this year. When it comes to boosting domestic demand, this is essentially about increasing government spending, as the CCP’s officials, accustomed to lavish lifestyles, are unlikely to tighten their belts.
The CCP's goal is still to hit the 5% GDP target. The stimulus plan primarily aims to resolve high government debt and prevent systemic financial risk. According to the International Monetary Fund (IMF), by last year, the total debt of local government financing vehicles (LGFVs) had exceeded 60 trillion yuan. This hidden debt, combined with local governments' explicit debt, brings total debt to over 100 trillion yuan, nearing the country’s GDP. In other words, all the hard work of the nation’s people could be wiped out by a handful of corrupt CCP officials.
Furthermore, the Ministry of Finance essentially functions as the CCP’s oversized treasurer, without authority over fund allocation and distribution, let alone wealth creation. According to a report by Yicai on October 25, public budget revenue for the first three quarters was around 16.3 trillion yuan, a year-on-year decrease of 2.2%. Tax revenue fell by 5.3%, including a 5.6% drop in value-added tax, a 4.3% drop in corporate income tax, and a 4.9% drop in individual income tax. Government debt to companies and employees stands at 12 trillion yuan, with barely any corporate or personal income. The only notable figure was non-tax revenue, which grew 13.5% to 3.1 trillion yuan.
The CCP’s most concerning issue is the shrinking land-based fiscal revenue. In the first three quarters, revenue from state-owned land-use rights sales decreased by 24.6% to 2.3 trillion yuan.
With shrinking fiscal revenue, where will funds come from to stimulate the economy? It will only come from issuing special bonds, printing more money without backing, and fiscal deficit monetization. But this money won’t go directly to residents or private enterprises. The reason is simple: personal bankruptcies don’t matter, but CCP officials must avoid bankruptcy at all costs.
Rumors suggest that the CCP will allocate 10 trillion yuan over the coming years to stimulate the economy. Analysts believe this will likely follow the 2008 model of 4 trillion yuan, with a focus on large infrastructure projects. Infrastructure is the only skill the CCP knows, and officials expect to profit from it.
According to Professor Cai Xia, a former professor at the Central Party School, in a Voice of America interview, after the 4 trillion yuan stimulus plan was announced in 2008, the CCP’s National Development and Reform Commission (NDRC) headquarters on Sanlihe Street in Beijing saw a surge of officials from various ministries and local governments. For an entire month, local hotels, inns, restaurants, and taxi drivers profited from this influx of officials, who rushed to pitch “project proposals” and feasibility studies. The central government provided 25% of the stimulus, while local governments covered 75%, meaning that local governments scrambled to secure projects. Achieving project funding equated to political achievement, making GDP growth a heroic achievement.
The stimulus plan launched in late September, including measures to boost the stock market, was suggested to Xi Jinping by He Lifeng, a member of the “Fujian faction” and Vice Premier.
According to a recent Wall Street Journal article titled, “He Lifeng: The Gatekeeper of China’s Economy for American Companies,” He Lifeng is one of the key figures controlling the lifeblood of China’s economy and has a “direct line” to Xi Jinping.
The article explains that He Lifeng, who has been an ally of Xi Jinping since their time in Xiamen, spearheaded numerous large-scale projects while governing Tianjin, including a major “China Manhattan” development. These expenditures spurred economic growth but also burdened Tianjin with heavy debt.
Since joining the NDRC, He Lifeng has overseen thousands of billions in spending on high-speed railways, airports, and water tunnels—a standard tactic in the Chinese government’s economic growth strategy but one that has led to ever-increasing debt.
According to The Wall Street Journal, “He Lifeng believes in national planning and control,” and a source with access to senior Chinese officials noted, “He is 100% aligned with Xi Jinping.” His most aggressive measure to boost consumption has been encouraging people and businesses to trade in their old equipment.
If the CCP’s proposed 10 trillion yuan were directed towards repaying debts to companies, this wouldn’t plug the gap in local government debt or bad loans in banks. For local officials, it offers no achievements, no government spending increases, and no corruption revenue, so it’s unlikely to happen. Neither Xi Jinping, He Lifeng, nor any village chief would prioritize such a measure.
(First published by People News)
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