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Urban modernization is undoubtedly a bright spot in China's economic development. However, the huge amount of expenditure required to achieve this goal remains a headache. Although the state invests a large amount of money in the local government every year, these funds, together with the bonds issued by the local government, are difficult to meet the needs of local development. Large-scale investment is needed in various fields, from school construction, urban infrastructure to civil service salaries. However, these expenditures are ubiquitous in the local development process.
For local governments, how to obtain sufficient fiscal revenue while developing has become an urgent task. Taxation, land transfer and bond issuance became the main sources of finance for local governments. Among them, land sale is an important source of income, and the sale of land to obtain funds to support urban construction. It is this development model that has driven the rapid growth of the mainland real estate market in the past many years.
However, in recent years, China's real estate market has experienced a slump after rapid development. Many places have seen a decline in property sales, and one of the main reasons is rising house prices. High housing prices make it unaffordable for ordinary people, and the population that has already bought houses is gradually saturated, resulting in a sharp decline in real estate demand, and the decline in house prices has become an inevitable trend.
As demand for housing declines, it becomes increasingly difficult for local governments to generate revenue through land auctions. This has led to a significant reduction in local revenues, but not a corresponding reduction in expenditures. In the process of local development, the problem of hidden debt gradually surfaced.
Originally, these debts were often financed by the state, but as the scale of local debts continues to rise, the central government has made it clear that it will no longer bear these debts for the local governments, and the local governments must take responsibility for them. However, it is difficult to meet local development needs with state financial support alone. As a result, local governments have had to issue bonds to raise funds, but this has also led to an increase in the size of local debt.
As a result, some places have introduced implicit bonds, as strict standards need to be followed when issuing local bonds. However, there are many places that need funds in the process of local development, whether provided by the state or self-financed by the local government, and the need for funds is urgent. Due to the large number of hidden debts at the local level, the state financial expenditure has been increasing, such as military investment, military construction and social security, which are all huge expenditures.
Especially in the past three years, the expenditure on nucleic acid testing has also been quite large, further increasing the financial pressure on the country. At the same time, the United States has continuously launched various provocations against China, imposed barriers and blockades on China's trade, and made the international situation increasingly tense. External pressures are growing, as are fiscal pressures, and domestic employment problems are becoming particularly acute. In the face of a gloomy economic situation, companies have laid off employees and reduced wages, resulting in a sharp decline in household income, which in turn weakened consumption momentum. Although the government has introduced measures such as the stall economy to boost consumption, the effect has not been obvious.
In order to solve the employment problem, the state has invested a lot of money, introduced favorable policies to support private enterprises, and continuously increased pension costs. However, with the increase of the elderly population in the mainland, the pressure of old-age care is also increasing. Considering these factors together, the country is facing great financial pressure. Therefore, the state must conduct a comprehensive investigation and scientifically assess the situation in various places to determine whether the hidden debt problem can be solved by the local government itself. On this basis, the state introduced local debt solutions.
In fact, in 2021, the relevant departments have analyzed and assessed this, and believe that local debt is controllable and local governments have the ability to solve it themselves. Therefore, the state requires local departments to strengthen regular supervision and ensure that all departments form an effective supervision synergy. At the same time, we must also find ways to reduce the scale of local hidden debts and properly handle local debt problems.
The issue of local debt has been attracting attention in China's modernization drive. Despite the enormous challenges and pressures, the Chinese government is taking active measures to seek to address this issue in order to ensure the sustainable development of the country. What is your view on the local debt problem? Welcome to share your views and thoughts in the comment area.
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