Miles: CCP’s desperate move of “Western Development”; CCP admits deficit risks

Chinese dissident Miles Guo said during one of his live broadcasts that the Chinese Communist Party (CCP) is facing severe economic and unemployment issues. One of the solutions is to send the excess labors to explore the “Big West” of China, a slogan that the CCP has been repeating for 70 years.

In contrast with the developed coastal region of China in the east, the Big West is the under-developed western region of China mostly with uninhabitable land and extreme weather, an environment too harsh for crops to grow.

It has been a place for the Chinese rulers to send political prisoners since ancient times. Miles suspected that the CCP will send all their political opponents to the Big West as a punishment.

During Chairman Bao’s era, many high school and middle school students were sent to the countryside including the Big West at the height of the cultural revolution from 1966-1976. It has ruined the lives of that generation. To solve the unemployment issue it is currently facing, the CCP would do anything to “stabilize the society”.

The Central Government starts the “New Era” of Western Development

From China State Media:

In order to accelerate the formation of a new pattern of western development and promote high-quality development of the western region, the “Guiding Opinions of the Central Committee of the Communist Party of China on Promoting the Formation of a New Pattern of Western Development in the New Era” (hereinafter referred to as the “Opinions”) are published, with a total of seven major points 36 Article, over 10,000 words.


The “Opinions” propose to ensure that the ecological environment, business environment, open environment, and innovation environment in the western region will be significantly improved by 2020, and work together with the whole country to build a well-off society; by 2035, the western region will basically realize socialist modernization, basic public services, The level of infrastructure access and the living standards of the people are roughly the same as those in the eastern region. We strive to achieve complementary development of different types of regions, the two-way open and coordinated development, the prosperity, security, and stability of ethnic border areas, and the harmonious coexistence of man and nature.

The CCP admits its deficit risks

The CCP has been faking its GDP numbers, but US-China trade war and CCP-virus are the fatal blows to its economy.

From China State Media:

The year 2020 will pose the biggest challenge to China since the launch of reform and opening-up. To begin with, since its GDP shrunk 6.8 percent year-on-year in the first quarter due to the novel coronavirus outbreak, China has to make unrelenting efforts during the rest of the year to achieve the goal of building a moderately prosperous society in all respects by the end of 2020.

Given the complicated economic situation, China has highlighted six requirements-guaranteeing employment, improving people’s livelihoods, allowing the market to play a leading role in resource allocation, ensuring food and resources security, strengthening the industrial supply chain and safeguarding normal grassroots operations-to stabilize the economy.

To fulfill the six requirements, the government has to adopt a favorable economic policy, fiscal policy in particular. And to create more jobs, China has to boost economic growth. But the economic downturn pressure was already high, and the outbreak has now raised it further. Since it is difficult to promote growth by relying on market forces alone, the authorities should adopt proactive fiscal policy to enable the market to play a more dynamic role in boosting the economy.

Proactive fiscal policy requires further reduction in taxes and fees. In 2019, the government reduced taxes and fees by more than 2.3 trillion yuan ($324.23 billion), and this year it has already announced to periodically reduce social insurance fees and some taxes. The total reduction in taxes and fees this year, in fact, could be more than 3 trillion yuan.

In the first quarter, the growth of fiscal revenue (general budget revenue) was negative, and it is difficult to reduce fiscal expenditure. Also, since a proactive fiscal policy doesn’t support fiscal expenditure cuts, fiscal expenditure could increase, instead of being reduced. Facing the dual pressure of sluggish fiscal revenue growth and higher fiscal expenditure, the expansion of fiscal deficit and increase in the fiscal deficit rate are unavoidable.

Last year, China’s fiscal deficit rate was 2.8 percent, while this year it is expected to be more than 3.6 percent. Although a fiscal deficit rate of 3 percent is considered the warning line for debt risk, it cannot be avoided this year. The 3 percent warning rate comes from the Maastricht Treaty of the European Union, a product of political compromise which has never been fully abided by. It was determined based on whether it causes debt risk or undermines sustainable fiscal operation, which means the bottom line of fiscal deficit is to ensure normal payment of principal and interests.

In order to fulfill the six requirements, the government also has to increase fiscal investment. As such, a slightly higher fiscal deficit this year is necessary for promoting social and economic development.

Along with the special national bonds issued, so as to boost the fight against the virus, the extra fund could effectively make up for the fiscal gap and better meet the demands of fiscal expenditure.

An appropriate increase in the fiscal deficit rate will expand the scale of general bonds. Besides general bonds and special national bonds, there are also bonds that target specific projects and require project revenue to cover the cost. If these bonds meet the demands, government debt risk could be greatly lowered. Based on the existing government debt rate, China could further issue 20 trillion yuan debts and still keep the debt below the 60 percent warning line. Which indicates China’s fiscal risk is generally controllable, because in the past years its fiscal revenue steadily increased and fiscal operation remained stable.

True, there is a risk of the fiscal debt rate increasing further, but China has the capacity and resources to cope with such challenges. The Chinese economy is resilient enough to return to the normal growth track after the outbreak is fully contained. And accordingly, its fiscal revenue will increase, which is key to overcoming fiscal risks.

The Chinese government has huge assets including State-owned resources and State-owned enterprises, which act as a bulwark against debt risks. Besides, strengthening of government budget management will improve the efficiency of fiscal funds, further reducing the fiscal risks. Which means the Chinese government is more capable of coping with debt risks than many other market economies.

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