How bad are the local governments’ finances in China? A piece of recent Chinese news gives a clue.
A hospital in a northeastern coastal city has not paid its employees since March, according to a video report from state-run Chinese media The Paper.
While the COVID pandemic was blamed, the hospital administrators admitted that the hospital has not paid pension insurance and provident funds since the year 2000 due to the hospital’s poor performance.
In reaction to the news, Chinese netizens said that this is not an isolated case and many indicated that they themselves were also the victims of their local hospitals. One responded: “It’s all too regular. Our county hospital has paid us on the basis of ‘once a year.’”
A Chinese netizen Heri_seldon wrote: “If the in-patient’s medical card runs low on balance, the hospital would call and demand the deposit. Otherwise, the medication will be stopped right away. Talking about the poor performance in the hospital? I won’t believe it. Is there a way to check the books?”
Public Funds Ran Out
Dandong Hospital in the Zhen'an district of Liaoning Province is a public hospital with local governmental subsidy as its main funding source.
Hospital staff told the media that the hospital has not paid any salary for five consecutive months.
Also in the video, the staff was heard saying with a voice changer, “Since 2000, the hospital has deducted whatever categories from our salary, but none went [to the pension and the provident fund].”
After the news broke out, local authorities promised to look into the problem and hoped to resolve it shortly. Local governmental finance issues have been exposed frequently these years. Sharp pay cuts among the public servants in wealthy Chinese cities such as Shanghai, Shenzhen, and Tianjin, were already widely reported in 2021, signaling the severity of the ubiquitous budget crisis among local governments inside China.
A group of apartments that were built in Hangzhou, capital of Zhejiang Province, sit vacant, as the construction company has gone bankrupt, on April 10, 2012. Also in Hangzhou, the developer China Metallurgical Group Corporation faces huge losses, as the local governments do not have the money to pay off debts to the company. (STR/AFP/Getty Images)
In 2020, China’s hidden local government debt “swelled to more than half the size of the economy, according to economists at Goldman Sachs Group Inc.,” Bloomberg reported.
Goldman’s analysis took the local government financing vehicle (LGFV) debt as an example. The LGFV was local governments selling off land to themselves in order to free up cash. In 2020, the LGFV debt was estimated to be at 53 trillion yuan ($7.85 trillion), roughly 52% of China’s gross domestic product. The local debt risk is believed to continue to rise.
