Chinese Finance Minister Lan Fo’an (left) and Xu Hongcai, vice chairman of the Financial and Economic Affairs Committee of the National People’s Congress, during the announcement of the bill to raise the local government debt ceiling, in Beijing, November 8, 2024. JOSH ARSLAN / REUTERS The Chinese government announced, Friday, November 8, a plan of 10,000 billion yuan (1,300 billion euros) to bail out local authorities exhausted after decades of massive spending on infrastructure and a real estate crisis which strained 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 the investment and construction in infrastructure 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 Minister of Finance announced on Friday that local authorities will be able to issue the equivalent of 780 billion euros in bonds over three years, in order to integrate the hidden debt into their own accounts, and will still be able to benefit from 520 billion euros of bonds – initially planned for future infrastructure projects – to bail out. The Chinese Minister of Finance, Lan Fo’an, said he wanted to “defuse the debt bombs” to allow local authorities to focus on “development and improvement of service”. Since 2020, the real estate crisis – part of Beijing’s desire to deflate the overindebtedness of developers – has devastated the finances of local governments. A significant part of their income came from the transfer of rural land to build new buildings. Since the new housing market has come to a standstill, this major inflow of money has disappeared. Read also | Article reserved for our subscribers American presidential election 2024: China wonders which Trump it will be dealing with Read later As a direct consequence, cities are increasing tax controls to stabilize their income, asking certain businesses and wealthy households to “self-inspect » to find tax arrears and to have the supporting documents ready for inspection. In the same vein, in January, the central government pointed out the drift of the small canton of She, in the northeast, which, in 2023, issued largely unjustified traffic violations and falsified the signatures of nearly 2 000 motorists allegedly arrested to fill his accounts. Appropriate dosage China had to, to enact Friday’s plan, go through a meeting of the 175 members of the Standing Committee of the National People’s Congress of the Chinese Communist Party (CCP). It should have been held at the end of October but was postponed until this week for a reason that has become obvious: the American election, which will force China to adapt its strategy. During the campaign, President-elect Donald Trump promised to impose 60% customs duties on the entry of Chinese products into the United States. Even a more modest increase in American customs taxes would hit Chinese factories hard. You have 35.51% of this article left to read. The rest is reserved for subscribers.
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