cross-posted from: https://lemmy.sdf.org/post/47360092
In China’s heavily indebted cities, “fiscal winter” is manifesting through a peculiar ritual: businessmen crowding government offices in a year-end rush to claim overdue contract payments. In private conversations, some bitterly recounted waiting for hours in line to deliver a short, rehearsed plea for payments – only to be told that the official they sought was unavailable. For the well-connected lot who were granted an audience, the meeting often ended quickly: a shrug, an apology, and a resigned admission from the official that his coffers were empty.
The fiscal strain weighing on China’s local governments has been long in the making. Years of debt-fueled infrastructure expansion, lax oversight of off-balance-sheet borrowing, and heavy spending during pandemic years have left many localities dangerously leveraged. The collapse in land-sale revenue and slumping tax receipts have further battered local finances. Adding to the stress, Beijing has demanded that local governments rein in their liabilities, lately by setting up a new department under the Finance Ministry to oversee debt repayment.
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For officials, delaying payments to government contractors and suppliers is “easy”: few small and medium-sized firms are willing to challenge the state. In an unusual piece of investigative reporting this month, state media noted that many private businessmen dare not file lawsuits or shang fang (“petitioning higher authorities”), fearing the consequences of antagonizing local officials.
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Lacking meaningful recourse, these entrepreneurs have resorted to the most basic form of debt collection: turning up in person, again and again, at the doors of local officials to press for payment. Their survival depends on it: by custom, business owners must settle workers’ wages and supplier bills before the Lunar New Year. In an economy already weighed down by slowing growth and weak demand, securing those payments often determines whether a firm stays afloat or goes under.
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Central policymakers are aware of the payment woes weighing on businesses. In recent years, Beijing has rolled out a steady stream of guidelines and directives requiring officials to settle outstanding bills without further delay. A mandate for local governments to clear arrears was codified in the country’s Private Economy Promotion Law enacted in June. Still, flashy slogans and political campaigns won’t do much to resolve the structural causes of unpaid bills.
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Local governments are tasked with spending obligations that far exceed their fiscal capacity. Beyond reining in liabilities, Beijing expects local governments to support growth and employment, subsidize research and innovation, and shoulder the costs of social-welfare expansion. Dwindling resources and competing priorities force officials to improvise – cut some expenses here, defer a few payments there – to keep up the appearance of solvency.
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Local governments have already been operating under so-called “belt-tightening” austerity, from cutting administrative costs to withholding wages and bonuses for state employees. When that wasn’t enough, officials turned to more harmful tactics like delaying payment and ratcheting up administrative fines. Some went further still: this summer, government auditors found that dozens of localities had misappropriated state funds – originally earmarked for pension and infrastructure investment – to cover debt repayment.
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A festering local debt crisis poses major headwinds as officials undercut private companies, pare back industrial subsidies, and divert welfare funds to meet debt obligations. Delaying a solution will only sap confidence and undermine the future Beijing hopes to build.