BEIJING – A misuse of funds meant for meals for poor rural children in China has again highlighted the pressures that local governments face in servicing their debts, a persistent problem that has become more acute amid a slowing economy.
In China, mounting debt has led local governments to find ways to meet repayment demands, from cutting public spending to seeking overdue tax payments from businesses stretching back decades, as well as delaying wages for public workers and reducing medical benefits for the elderly. But the State Council report, submitted to China’s Parliament, the National People’s Congress, on June 25, found that local debt management remains “not strict enough”.
A Jiangsu province-based F&B firm received a bill for overdue taxes of 85 million yuan dating back to 1994, while an oil production company in Zhejiang province was slapped with a 500 million yuan tax bill. Under Chinese law, in general, tax authorities can pursue tax recovery for up to five years, but there is no time limit if tax fraud or evasion was committed.
All this is taking place amid a slowing economy. China’s economy, which grew by 5.2 per cent in 2023, is expected to slow to 5 per cent in 2024 and to 3.3 per cent by 2029, according to the International Monetary Fund. On the national level, local debts might lead to less sustainable growth as the central government needs to step in, for instance by issuing sovereign debt, Mr Elkobi added.