Xiang Songzuo, October 23, 2019
Xiang Songzuo (向松祚) is an economist, and a professor of the School of Finance and Finance of Renmin University of China. His speech in December 2018, A Great Shift Unseen Over the Last Forty Years, translated by China Change, was widely disseminated. This short, recent commentary below was immediately censored on Weibo and WeChat. — The Editors
According to official data, China’s GDP growth rate in the third quarter fell to 6 percent, and will likely fall below that in the fourth. Next year, it is sure to enter the era of 5 percent. If you look at corporate profits, fiscal revenue and other indicators, things don’t add up and the official GDP growth rate is clearly inflated. In the areas of fiscal revenue and corporate profits, it’s most negative growth. National tax revenues also experienced negative growth in the first three quarters. How can it be possible that GDP grew by 6 percent? When I went to places to observe, research, and talk to people, the local government officials are much more frank about the fact that their regions are experiencing negative growth.
And the government even claimed that there’s “progress in stability” and that “things are getting better as they remain stable.” But this doesn’t agree with reality.
Even according to official data, the national fiscal revenue has been on the decrease from May to September this year. The growth rate of corporate profits has fallen sharply and experienced negative growth. Residents’ income has not increased rapidly. The income from individual tax revenue has dropped by nearly 30 percent in the first three quarters. These three figures added together make up the GDP, and all three are either increasing very slowly, or decreasing. How can combining them yield GDP growth of 6 percent?
If it’s tax cuts that lead to a decline in fiscal revenue, then GDP can still maintain a growth rate of 6 percent. In this case, either the company’s profits should grow faster, or the people’s income should shoot up, but neither of these has happened. This means that GDP growth can’t be that fast.
Clearly, the government should acknowledge that the economy is in dire straits, face this grim economic reality, and set its mind on reform.
Why has the downward economic pressure continued to increase?
I think that confidence among private entrepreneurs was severely frustrated amidst the various disturbances last year, and has yet to recover. The lack of entrepreneurial confidence, particularly the sharp decline in manufacturing investment, is the key reason for the accelerated downturn in economic growth. How to restore and strengthen the confidence of private enterprises? Without a major reform like Deng Xiaoping’s 1992 Southern Tour, it will be difficult.
Reportedly, up to 70 percent of private entrepreneurs in a certain province have emigrated, which may be a bit of an exaggeration, but the indisputable truth is that private entrepreneurs generally lack a sense of security and have no long-term investment plans. How to make private entrepreneurs feel secure, willing to make long-term investments, and keep them from wanting to emigrate and moving their assets away? It must be through giving them freedom, and truly protect the rights of private property and entrepreneurs with the rule of law.
Another major reform, as everyone is aware, is that of the state-owned enterprises. Today, have the SOEs really undergone reforms? All we’ve heard is the repeated calls to strengthen the Party’s leadership. Where are the reforms that are really able to inspire entrepreneurial vitality?
As it stands, the phenomenon of “the state advances as the private sector recedes” (国进民退) cannot be denied, and the prevalence of various forms of discrimination against private enterprise cannot be denied either. How to solve the massive debt of SOEs? Let it fester and have the people bear the burden? Why not sell off the state-owned enterprises, sell state-owned assets, and reduce these debt ratios?
Beyond this, there are too many aspects of the government and state that are in need of change. At present, vacuous inspections and studies are probably taking up half the time for many officials. The grassroots cadres are even more miserable. Security inspections and useless work is everywhere. All of this requires financial expenses. In the third quarter of this year, fiscal revenue growth was only 3.3 percent, but the rise in expenditure was 9.6 percent. Can this go on? There is a serious dearth of economic vitality combined with the rapid growth of non-productive fiscal expenditure. How can this continue?