The Chinese Communist Party (CCP) has relied on a series of economic lies to sway many people’s perceptions of the current situation. In this article, we look at some of the biggest lies and present the true picture behind those lies.
The First Economic Lie: Development Is the Absolute Principle
In the past decades, the biggest lie of the CCP’s economic policies is “development is the absolute principle,” a statement made by CCP’s leader Deng Xiaoping during his southern China tour in 1992.
Since then, justifying things as “development” has become the best excuse to cover up mistakes, which became justified and unquestionable.
In the late 1950s and early 1960s, Mao’s “Great Leap Forward” campaign led to three years of famine in China, but Mao would rather let tens of millions of peasants starve to death than stop the costly development of atomic bombs and missiles.
CCP’s political agenda is completely different from the traditional Confucian culture of “the common people are the most valuable” which valued the needs of the people as the ultimate needs of the country, and the sole purpose of development is to truly serve the majority of its people.
The Second Economic Lie: The Officials are Corrupt, Not the CCP System
The CCP lies to the Chinese people that corruption is only the personal behavior of officials and that the CCP system is always good. People fail to see that the CCP’s corruption is institutionalized. The communist regime was established with unchallenged power for officials at all levels. Institutionalized corruption of the CCP exists and permeates nearly all Chinese economic activities throughout the CCP’s history.
Before its 1978 reform, corruption occurred in different forms, mainly manifesting in the provision of food (especially during the three-year great famine), free housing, and medical services according to the ranks of the officials.
The privileges even included the use of power for sex. The CCP’s officials at all levels followed the suit of Mao and other senior officials. In the 1970s, I was sent down to rural areas in Anhui Province for reeducation (Down to the Countryside Movement). Once, in 1973, I went to Chao County for a meeting and stayed at a guest house. I saw the political commissar of the Chaohu military sub-district holding a young girl from the guest house on his lap. He even did not care to close the door because of the power he had.
After the reform, the regime’s bureaucratic system never changed. The goal was to generate revenue or personal gains while performing their official duties. Using power to make money becomes the norm, and the few decent officials who stay out of it will become a thorn in the side of other officials who will want to get rid of them.
Since the mid-1980s, the offspring of the powerful CCP officials have taken advantage of this bureaucratic intervention. They sold certificates of quotas of production materials and resources that were controlled by the CCP, making a profit from the price difference, and they sold import quotas for automobiles or electrical household appliances. In the early 1990s, they profiteered from obtaining land through bribery and real estate, and in the late 1990s, the princelings gained fame and wealth working as agents for foreign financial sectors.
In this century, bribery and the sale of official posts and titles also became a way to make a fortune easily. Guo Boxiong and Xu Caihou, two military generals sentenced to imprisonment for their corruption, are just two examples.
The Third Economic Lie: ‘Let Some People Get Rich First”
The third lie of the CCP is the reform when Deng Xiaoping touted “let some people get rich first” in the mid-1980s, and ordinary Chinese thought they were among the “some people” to get rich.
In fact, the majority of Chinese are rural residents. Since the so-called household registration practice was introduced in the Mao era, the rural Chinese have all been turned into inferior nationals.
Under the CCP’s rule, the so-called “migrant workers” were born. The term refers to city workers from rural areas. They won’t be given a city resident status unless they can afford to buy a very expensive home in the city. Migrant workers have no long-term health insurance or social security, and their children cannot attend schools or take the national college entrance exams together with their urban counterparts. Migrant workers spend half of their lives working in construction sites and factory assembly lines, but in the end, they still must return to the countryside to retire.
Most rural residents remained relatively poor, although the Chinese economy is among the world’s top economies. Even with the contribution of the migrant workers, the 2019 annual consumption expenditure per capita for rural Chinese was roughly $2,000, with a per capita daily consumption of around $5.60.
According to data published by the World Bank in 2018, the poverty-line standard is $5.50 per day in upper-middle-income countries. In other words, after decades of reform and opening up, hundreds of millions of rural residents in China are still living close to the poverty line.
The existence of such a large low-income population demonstrates that China’s high economic growth only created the world’s largest society of relative poverty. At the same time, it has created a crony elite class that makes up a tiny minority of the population, but whose household wealth is much greater than the average upper-middle-class in Western countries.
The Fourth Economic Lie: Restructuring of State-owned Enterprises
The CCP began privatizing its state-owned enterprises (SOEs) in 1997, but up to today, it still refuses to acknowledge that the privatization was completed more than 20 years ago.
The reason behind the privatization was that the CCP’s public ownership of enterprises had completely failed and SOEs had become a heavy economic burden for the government, leading to the near-collapse of the banking system. More than 20 percent of SOE loans granted by the four major state-owned banks in the early 1990s were bad loans. In 1996, the bad loans of SOEs in the banking system and their overdue loans accounted for about 70 percent of the total loans. To save the banking system from collapse, the CCP launched comprehensive privatization of SOEs in the second half of 1997.
The key to privatization is who will buy the SOEs. The average monthly salary of SOE managers would not be able to afford it, and foreign capital plays a minimal role in the privatization process of SOEs.
I have analyzed 130 cases of privatization of SOEs in 29 provinces and cities and have found out the main methods the CCP has used to privatize SOEs. Because of this dark secret, the CCP has not allowed domestic studies on the privatization process, and the state media has basically not reported the truth about the privatization of SOEs.
One method is that the CCP allows the managers of nearly one million SOEs to get loans from banks with guarantees in the name of the enterprises. Then they buy state property with the loans and they are allowed to register the enterprises they manage in their own names or in the names of their family members. After that, they use the public funds of the business in their capacity as owners of the business to return the bank loans with which they have privately purchased the business.
Another method is that the managers of SOEs force their employees to purchase part of the shares of the enterprises. The employees have to use their family savings to buy the shares of the enterprises to keep their jobs, but they are not allowed to inquire into the operation of the enterprises or the transfer of assets. The employees are forced to contribute money to help the management of the SOEs to acquire ownership of the SOEs.
A third method is that the authorities connive with the spouses and children of these red families in power to use their networks to help large SOEs to get listed, for which they are given complimentary shares of the listed companies. Then they make a big profit from the shares by raising the share price.
There were in total 110,000 industrial SOEs nationwide in 1996, and by the end of 2008, only 9,700 remained, which included large SOEs that had been partially privatized.
According to two national sample surveys funded by the World Bank and others, about 50 to 60 percent of the enterprises are privately owned by the management, and about a quarter of the enterprises are bought by investors from outside the enterprise. These investors are from other domestic industries, of which less than 2 percent are foreign investors. Only 10 percent are privatized jointly by management and employees.
This kind of restructuring of SOEs is almost like an open division and plundering of national assets by the management, together with their superiors (local government officials) and the second red generation.
From 1998 to 2003, when the red elites were extensively appropriating the assets of small and medium-sized SOEs through privatization, the communist regime specifically closed the State Assets Administration, which was responsible for supervising SOEs, creating a window period in which the supervision of SOEs was absent during the critical six years of privatization. This facilitated the embezzlement of SOE assets by the red elite.
At that time, the CCP propagated that the layoffs of SOE workers were a necessary sacrifice for reform, but the regime was unwilling to establish a unified unemployment benefit for laid-off workers. It shifted this responsibility to the red bosses of the privatized enterprises, and if the new owners did not want to pay, the communist regime did not care. As a result, tens of millions of former SOE workers were thus reduced to the status of urban poor, struggling for their survival.
The CCP is Making Chinese People Pay For its Debts
The CCP now boasts that its economy will surpass that of the United States. The uninformed public is easily confused by the superficial prosperity of urban construction and infrastructure such as high-speed rail. The public mistake that for the CCP’s achievement, but in fact, that is a huge debt that will result in endless internal difficulties.
Since the beginning of this century, the CCP has gone from once relying on international markets to relying entirely on real estate and infrastructure to drive the economy. The over-inflation of real estate has created an extremely dangerous bubble economy that has left the banking system at the edge of collapse. Local governments have long relied on revenue from land sales to maintain local finances, a path that has now come to its end.
With its dependence on exports, the CCP’s economy largely relies on excessive borrowing by nationals of the United States and other developed countries. In other words, the more money Westerners are willing to spend, the more China’s economy can sustain itself. That is why the CCP, amidst today’s China–U.S. relations, still expects the United States to eliminate import tariffs. However, the United States is no longer willing to sacrifice its own future for the survival of the CCP.
Today, the CCP is borrowing foreign debt at high interest rates to import the food, oil, iron ore, and chips necessary to sustain its economy. This is tantamount to advance spending in terms of international financing.
Domestically, the CCP’s Ministry of Finance admitted not long ago that “the accumulated government debt was 46.6 trillion yuan ($7.2 trillion) as of the end of 2020, accounting for 46 percent of GDP.” This does not include the many urban construction bonds issued by the local governments and the debts issued by the three central policy banks: China Development Bank, the Export-Import Bank of China, and the Agricultural Development Bank of China. It is safe to say that the debts at all levels of finance have reached their edge of collapse as well.
Originally, the purpose of the local governments’ issuance of huge amounts of bonds and active engagement in infrastructure investment was to use income from land sales to repay their debts. This way of deficit spending is no longer available because the central government is competing with local governments for financial resources. From July 1 this year, the central government announced that the income from local land sales will be transferred to the central government, and this policy started to be executed in the city of Shanghai and provinces of Zhejiang, Hebei, Inner Mongolia, Anhui, and Yunnan. From Jan. 1 next year, the whole country will all follow suit.
This is a fatal blow to local governments, which will not be able to repay the huge amount of bonds issued by them for infrastructure and real estate development. To survive, the local treasuries need to speed up the introduction of property tax, which will burst the real estate bubble, and the homeowners will pay out a large amount of money to pay off the debts of the authorities.
Now China’s housing market, finances, and banks are strained. Not only is the economic boom unlikely to return, but the economic difficulties reflected in high unemployment and low wages are worsening day by day, bringing an end to the “good old days” of the Chinese economy. The lying-flat lifestyle (i.e., the lifestyle of young people not seeking a job nor a spouse, not getting married, and living at the lowest level on their parents’ pensions), which is becoming popular among some young people now, reflects, to a large extent, the pessimistic mood of the young generation about the future.
Cheng Xiaonong is a scholar of China’s politics and economy based in New Jersey. Cheng was a policy researcher and aide to former Chinese Communist Party leader Zhao Ziyang. He also served as chief editor of Modern China Studies.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.