How the Chinese State Achieves Extraordinary Income Growth

September 28, 2010 5:09 pm Last Updated: October 1, 2015 6:56 pm

Sales people introduce properties to potential buyers at the 2008 Beijing Autumn Real Estate Trade Fair in Beijing, China. (Feng Li/Getty Images)
Sales people introduce properties to potential buyers at the 2008 Beijing Autumn Real Estate Trade Fair in Beijing, China. (Feng Li/Getty Images)
Land sales have been fueling the rapid growth of the income of the Chinese state at levels that appear to be unsustainable.

Fiscal revenue in China—the amount of money the state takes in—has been growing faster than the nation’s gross domestic product (GDP) for 16 consecutive years, which means that the percentage of the nation’s wealth that goes to the state has been steadily increasing throughout these years.

In early August, the Chinese Ministry of Finance announced that China’s fiscal revenue for the first eight months of 2010 stood at 5.68 trillion Yuan (US$850 billion), up 23.6 percent from the same period last year, which was much higher than its 2010 GDP growth forecast of 10 percent.

In 2007, the United States’s fiscal revenue accounted for 18 percent of its GDP, while the fiscal revenue of Japan and Germany accounted for less than 10 percent and 23 percent of their GDP respectively. During the first three quarters of 2010, China’s fiscal revenue accounted for about 22 percent of its 2009 GDP (the 2010 figure is not out yet), which is higher than that of the United States and Japan, and is almost the same as Germany’s.

Only about 22 percent of China’s fiscal revenue is spent on education, medical and health insurance, and other social welfare functions, and the Chinese state’s administrative expenditures almost account for the same percentage. China is the world's most expensive state.

Based on the past decade’s data, some experts estimate that China’s fiscal revenue may account for 32 percent of its GDP by 2015, and the percentage may exceed 40 percent and 50 percent by 2020 and 2024 respectively. But in light of the fact that China’s fiscal revenue as a percentage of GDP has grown rapidly since 2003, it may exceed 50 percent by 2016, and may even exceed 100 percent by 2022, which would require that all national output would be collected by the government.

Of course, this is impossible and there must be some changes in China between now and 2022. Otherwise, the entire fiscal and economic system may collapse.

'An Inch of Blood'

The Chinese people have a saying to describe China’s fiscal growth in recent years, “an inch of blood for an inch of land.” The saying refers back to the war with Japan, which was described at the time as involving “an inch of blood for an inch of land.”

The selling of land has provided the main source of income that has allowed the fiscal growth of the Chinese state to exceed its economic growth.

The Chinese state forcibly expropriates land from the people at extremely low prices and then forces them to relocate. The land taken from the people is then sold at much higher prices. As a result, every inch of land may be tainted with blood and tears, leading to the common saying.

An example of how little security the Chinese people have in their land and homes may be found this past February in the Fifth Huyan District in Jiangsu Provinces Changshu City.

Shortly before the Chinese New Year, the most important holiday of the year when families traditionally come together, many residents were suddenly informed that their rights of using the state-owned land where their homes were situated would be taken back by the government within 15 days. It was said the land would be used for other purposes.

According to contracts signed between the real estate developers and the Land Resources Department of the local government, the homeowners involved should have had the use of their land for 70 years. In fact, their housing units were less than ten years old, and some had only moved in about four years ago.

The Chinese economist He Qinglian has referred to the phenomenon of the expropriation, selling, and then re-expropriation and re-selling of land as a “bigamous marriage for a girl.” Of course, in this case, only the more recent “husband” retains any rights.

This abuse of property rights could also be referred to as a chain robbery. With this practice, the land revenue can continuously flow into the hands of the state and its officials. The Chinese regime may create another miracle of land finance such as has done over the past ten years.

Meanwhile, while the state and the officials take in new revenue, they are silent on the question of how the residents whose housing units have been demolished would pay off their remaining mortgage debt.

This article first appeared in the
New Epoch Weekly.