18.03.2018

1 Local Government Debt and Lianghui

What we thought was significant in the Lianghui 2018 (I)
China's surging local government debt is spiralling out of control and could potentially trigger a financial crisis, with devastating consequences for the country. The views of the Party and Chinese government bodies. Introduction.


The Lianghui is the annual dual assembly that brings together into a single session (usually in March) the National People's Congress (全国人民代表大会, Quánguó Rénmín Dàibiǎo Dàhu) and the Consultative Conference of the CPP (全国政协, Quánguó Zhèngxié). For many years now, Polonews has viewed this meeting as one of the most useful events in trying to understand what is happening in China.

It involves a vast quantity of reports which would be beyond our power to analyze in detail. Moreover, although some changes have taken place in recent years, there remain some doubts as to the consistency between the original Chinese texts and the official translations published on the Party's and State Council's websites. The issue is not so much about ‘biased' translations (although this cannot be ruled out) but rather about the choice of texts that are translated. It is often the case that the articles which may seem most interesting to Western researchers are either not translated, or finding them, after a brief appearance, becomes so difficult as to sometimes seem an impossible task. The texts in Chinese, on the other hand, remain publicly available and accessible. What is the point, then, of struggling to find the ones published in English?

During this year's Lianghui, a very interesting report was read out concerning the debt of local and provincial governments - something that credit rating agencies monitor quite closely. This problem was also discussed in the various lianghui sessions held during the Hu Jintao / Wen Jiabao administration, and proved to be a very challenging one. We addressed this subject in several chapters of the book Storie di uomini e di fiumi (Mulino, 2016). Our analysis of the period 2002-2012 (which Storie di uomini e di fiumi refers to) revealed the clear and growing concern of the State Council and Communist Party about the level of indebtedness of local governments. In many of the public reports he delivered during those years, the then Premier Wen Jiabao unequivocally stated that the economic problem was part of a more complex political problem. He pointed to the considerable challenges faced by the Chinese government in getting provincial governments to comply with its provisions. Ultimately, the problem had to do with the ability of the Party to rule a country in which - as far as budget matters were concerned - the provincial governments seemed to act in complete autonomy, often regardless of the law and, to use a recurring expression among the documents from Lianghui 2018, "in a totally unscrupulous manner".

In Storie di uomini e di fiumi we pointed out how the Party and Council of State frequently tackled this issue by choosing to conceal it behind a generalized ‘fight against corruption'. We suggested that there could be far more than just a personality-based political struggle behind this huge campaign to ‘clean up' the Party and local government. It was not (merely) a matter of fighting against the illicit personal enrichment of many high level officials as they carried out their public duties (though still possible and very widespread), but of reducing the unacceptable degree of autonomy exercised by provincial governments and their leaders. The real problem was not that they should "stop stealing" or "enriching themselves" (all of which happened fairy regularly anyway), but that their actions should be brought back into line with the guidelines set by the Council of State at the local economic and financial level. In our view, if we paid more consideration to this aspect of the problem, we might regard with less apprehension "Xi Jinping's struggle for power on a path leading to a new Mao" and focus instead on the struggle by the Party and the Chinese government against the provinces and local governments, which don't know how to, are unable to, and do not want to comply with the Party's and the central government's provisions, and at times even go as far as to challenge Beijing and its leadership role.

It is an ancient Chinese problem. Since the establishment of the imperial administration, including under Chairman Mao, stubborn resistance against control of the Chinese provinces has been a constant challenge in China's political and administrative life. We know that in many eras, including during the revolutionary years, the centre found it enormously difficult to contain the centrifugal thrust of the provinces. China's problem, it would seem, far from being one of democracy, has to do instead with the real power of Beijing. But then again, we know that "The mountains are high, and the emperor is far away!"

In recent days, an interesting article on the subject has also been published in the South China Morning Post.

We will be devoting a number of articles to this topic. But first we would like to offer some suggestions for further reading, obviously by no means exhaustive, to anyone interested in exploring the current debate in more detail. Since these are references to documents, we are not providing a translation of them. The main thing is to find them.

务院关于加强地方政府性债务管理的意见发〔2014〕43
(These are administrative and political recommendations to the provincial and local governments on indebtedness, the definition of the guiding principles to adhere to, the recording of losses in the financial statements, and debt repayment).

全国政协委员、十二届全国政协副秘书长、民建中央原副主席 宋海 - 中共十九大报告提出"健全金融监管体系,守住不发生系统性金融风险的底线"。地方政府债务带来的财政金融风险已经成为当前经济运行中最主要的风险之一

(Report presented by Song Hai at Lianghui 2018, March).

"One leak and we'll all drown: top Chinese lawmaker raises alarm over river of local government debt" by Frank Tang, in the South China Morning Post, 14 March 2018.

(I)