China Must Live Through ‘Times of Austerity’
Regime leaders speak of lean times, analysts see an economy heading south
January 15, 2019 Updated: January 15, 2019
Chinese Premier Li Keqiang recently said that “times of austerity” are ahead for China. His warning follows a similar one by the Minister of Finance of China, and analysts said this talk of belt-tightening is a sign that China’s economy is getting worse.
According to the official website of the State Council of China, Li chaired a State Council executive meeting on Jan. 9. During the meeting, decisions were made to roll out inclusive tax reduction measures for small and micro enterprises.
Li said at the meeting, “Reducing so much tax every year will naturally bring pressure to our fiscal revenues. All levels of government bodies and departments should make resolute cuts to their regular expenditures, with a firm and clear realization that we are living through times of austerity.”
Li also said, “Small and micro enterprises are the main entities that create employment opportunities. The main purpose in reducing their taxes is to support employment. At a time when the pressure of economic downturn is mounting, this measure can play a critical role in stabilizing the employment situation.”
During a national financial meeting in Beijing on Dec. 27-28, Chinese Minister of Finance Liu Kun said that in the complicated international environment, in order to maintain the stability of China, the state was going to greatly cut taxes and fees; the state should be prepared to live through times of austerity, and to cut regular expenditures.
In China, small, micro and medium-sized enterprises amount to 99 percent of all enterprises in terms of numbers. Most of them are privately owned. There are around 70 million of these kinds of enterprises in China. They contribute more than 60 percent to China’s GDP. State-owned enterprises are mostly large-scale ones. 98 state-owned enterprises contribute about 32 percent of GDP.
Chinese commentator Shi Shi said, the fact that China’s top leaders have stressed “living through times of austerity” indicates that China’s economy is having a very difficult time.
Xiang Songzuo, the former chief economist at the Agricultural Bank of China, former deputy director at the People’s Bank of China, and deputy director and senior fellow of the Center for International Monetary Research at China’s Renmin University, revealed in an internal speech in December that according to “an important research institute,” China’s GDP growth was as low as 1.67 percent. Using another system of measurement, the GDP growth was negative.
The official GDP growth figure was 6.5 percent, the lowest in more than a decade.
Xiang Songzuo believes that the cause of the economic downturn was that privately owned businesses in China were heavily impacted in 2018. The trade war with the United States also played a big role.
Shi Shi said that the Chinese state was forced to cut taxes now to prevent further deterioration of the economy, as well as to sustain the job market to avoid social unrest. Small and medium enterprises employ about 80 percent of the work population. If these people lose their jobs, it will have great impact on the regime. The state-owned enterprises only employ about 1.6 percent of the workforce.
On Oct. 22, the Chinese news website Net Ease published a report titled “In the First Half of This Year, 5.04 Million Enterprises Go Bankrupt, Over 2 Million People Lose Their Jobs.” The report was deleted shortly afterwards.
In September 2018, an article in Sina Finance said that every year there are about 1 million enterprises in China going into bankruptcy. In other words, every minute there are two enterprises closing down. Among millions of small and medium enterprises, less than 7 percent survived for more than 5 years; and less than 2 percent survived for more than 10 years.
Put another way, 98 percent of small and medium enterprises in China will probably eventually die out.
China’s stock markets all plunged on Jan. 14 after the import and export figures of December were announced.
According to the figures by the General Administration of Customs of China, China’s imports in December dropped 7.6 percent, much less than the expected 4.5 percent increase.
As the same time, the overall exports fell 4.4 percent from a year earlier, the biggest monthly drop in two years.
Source: https://www.theepochtimes.com/china-must-live-through-times-of-austerity_2767230.html
