China Must Live Through ‘Times of Austerity,’ Chinese Premier Says

Regime leaders speak of lean times; analysts see an economy heading south
January 15, 2019 Updated: January 15, 2019

News Analysis

Chinese Premier Li Keqiang recently said that “times of austerity” are ahead for the country. His warning follows a similar one by the regime’s finance minister, and analysts say that such 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.

“Reducing so much tax every year will naturally bring pressure to our fiscal revenues,” Li said at the meeting.

“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.

“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.”

Minister of Finance Liu Kun said, during a national financial meeting in Beijing on Dec. 27 to 28, that in the complicated international environment, in order to maintain stability, the state was going to cut taxes, fees, and regular expenditures, and should be prepared to live through times of austerity.

In China, small-, micro-, and medium-sized enterprises amount to 99 percent of all enterprises in terms of numbers; most of them—around 70 million—are privately owned. They contribute more than 60 percent to China’s GDP, compared to state-owned enterprises which are mostly large-scale businesses. Ninety-eight state-owned firms contribute about 32 percent of GDP.

That China’s top leaders have stressed “living through times of austerity” in comments indicates that China’s economy is having a very difficult time, Chinese commentator Shi Shi said.

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, said 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 believes that the cause of the economic downturn is that privately owned businesses in China were heavily impacted in 2018, and the Sino–U.S. trade war played a big role.

Shi said the Chinese state is having 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 workers were to lose their jobs, it would be a heavy blow for the regime. State-owned enterprises employ just 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 afterward.

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 businesses shutting down. Among the millions of small and medium enterprises, less than 7 percent survive for more than 5 years; and less than 2 percent survive for more than 10 years.

Put another way, 98 percent of small and medium enterprises in China will eventually die out.

China’s stock markets tumbled Jan. 14 after import and export figures for December were announced. According to the General Administration of Customs of China, China’s imports in December fell 7.6 percent; a 4.5 percent increase had been expected.

Overall exports fell 4.4 percent from a year earlier, the biggest monthly drop in two years.