China’s Dalian City Running Out of Money Amid Pandemic, Documents Show

August 18, 2020 Updated: August 23, 2020

A series of internal documents from Dalian’s municipal government recently obtained by The Epoch Times reveals that the northeastern Chinese city is under financial strain that has been exacerbated by the economic costs of the pandemic.

The documents show some of the urgent fiscal and economic difficulties that Chinese authorities face.

Dalian Pulandian District Housing and Urban-Rural Development Bureau (housing bureau) stated in a document dated May 21: “Special request for the district government to allow borrowing of 1.6 million yuan [$226,200] from the district Letters and Visits Department’s stability maintenance fund for May 2020 to December 2020.

“The funds will be given to state-owned enterprises to cover local construction workers’ insurance and benefits.”

The insurance and benefits, known as the “five insurances and one fund,” include pension insurance, medical insurance, unemployment insurance, work injury insurance, maternity insurance, and housing provident fund. In addition, “stability maintenance” is the regime’s euphemism for efforts to suppress dissidents and maintain political stability on behalf of the Communist Party.

Epoch Times Photo
Dalian Pulandian district officials requested permission to borrow funds earmarked for “stability maintenance” and use them to cover employee benefits. (Provided to The Epoch Times)

The housing bureau—a government agency with real political power—is short on cash, indicating the severity of Dalian’s financial woes.

In the document, the housing bureau promised to “return the loan [from the maintenance fund] in a timely manner” under two prerequisites. First, the court is to unblock the state-owned enterprises’ bank accounts; and second, the local treasury would cover the municipal construction maintenance fees.

The COVID-19 pandemic has had an immense impact on the Chinese Communist Party’s (CCP) finances, as the country’s fiscal revenue experienced negative growth for the first time since the global financial crisis of 2008, according to Chinese officials. In March, that figure tumbled 26.1 percent from a year earlier.

While the Dalian municipal government hasn’t yet released its financial data for this year, it estimated that large industrial and corporate enterprises’ profits fell by 62.1 percent from January to April. China counts large firms as those with main business revenues of 20 million yuan (about $2.89 million) or more.

Some Construction Projects Discontinued

A housing bureau document, reporting projects approved for continuation, revealed that as of March 29, there were a total of 543 housing projects, of which 61 were new and 482 were continuing construction.

Of the continuing projects, only 409 were approved. The remaining ones were unsound (six), long-term shutdowns (29), not intended to resume (13), and unable to resume (19), indicating a total of 67 abandoned city projects.

Epoch Times Photo
A March 31 notice showing that some housing projects were abandoned by Dalian city. (Provided to The Epoch Times)

Migrant Workers Sent Back to Dalian

Also in the document, a total of 2,365 migrant workers were transported back to their hometown of Dalian during the pandemic, to work on local projects instead. That likely means the migrant workers were unable to find work in the urban areas where they relocated.

This reflects how the pandemic has seriously hindered the recovery of the labor market.

The pandemic has caused both funding and labor shortages in the Dalian government and will likely impact its ability to continue city construction projects.

The Dalian Commerce Bureau issued a notice, dated March 17, noting that retail sales fell by 25.1 percent during the months of January and February.

“The development of the epidemic is still unclear, the external economic environment is turbulent, and the development of enterprises is more prominently restricted by rent, labor, and logistics,” it said.

Epoch Times Photo
Dalian municipal government office May 22 notice on foreign capital utilization from January–April, 2020. (Provided to The Epoch Times)

A notice from the Dalian Municipal Government Office, dated May 22: “Notice on the actual utilization of foreign capital in various areas of the city from January to April 2020,” disclosed that foreign investment had plummeted, and the amount of foreign capital actually utilized year-on-year fell by 56.8 percent from January to April.

A series of special tax reports, issued by the Pulandian District Taxation Administration, revealed that exports and taxes have been hurt by the pandemic.

“Affected by the epidemic, the February export value was reduced by 23.99 million U.S. dollars year-on-year, a decrease of 37.26 percent,” and that the export situation this year didn’t look optimistic.

As for the main source of local fiscal income and corporate income taxes, the Pulandian District Taxation Administration examined the “resumption of business and production,” and found that the manufacturing and construction industries during the first quarter of this year “have been more affected by the pandemic.” A substantial decline in revenue in the first quarter is expected, by more than 70 percent year-on-year.

These two industries are the main sources of tax revenue for the Pulandian District government, accounting for nearly 90 percent of prepaid taxes, according to the documents.

A survey of 15 key taxpaying companies in the area found that while about 73 percent resumed production, the majority lost money this year. There were only four companies that made a profit in the first quarter, and two of them had increased profit and tax declarations year-on-year.

According to the report, the total taxes paid by 15 key taxpaying companies in the first quarter fell 80 percent year-on-year.