China's ex-finance minister says nation's fiscal situation 'extremely severe'
China's fiscal situation is "extremely severe with risks and challenges", former finance minister Lou Jiwei has warned, citing fallout from aggressive US stimulus policies, the global economic slowdown during the pandemic, an ageing Chinese population and mounting domestic local government debt, reported South China Morning Post (SCMP).
China's revenue is expected to remain low in the next five years, with no prospect of spending cuts, added Lou.
"The fiscal difficulties are not only a near-term or short-term issue, but also will be serious in the medium term," said Lou.
Lou offered his sharp critique in December but the assessment has only been made public more recently, with just days to go before China's political elites meet for their annual legislative session to decide the details of economic policy, reported SCMP.
Lou's warning comes as China's National People's Congress (NPC), the country's legislature, and the Chinese People's Political Consultative Conference (CPPCC), the country's top political advisory body, prepare for the start of their annual gatherings this week.
The meetings, known as the "two sessions", are the most important annual political gatherings in the world's second-largest economy, during which Chinese leaders are expected to announce lower targets for the central government's budget deficit and for the issuance of local government special-purpose bonds this year.
Orange Wang, in an article in SCMP, wrote that Beijing is expected to cut back fiscal stimulus.
At the annual legislative session, the big issues will be whether to scale back the fiscal stimulus implemented last year to combat the impact of the coronavirus pandemic, and instead focus on curbing rising debt risks.
Lou, who is director of the CPPCC's foreign affairs committee, said there were further uncertainties and challenges to China's fiscal health on the domestic side.
China conducted an expansionary fiscal policy for 11 consecutive years from 2009, resulting in a continuous rise in the fiscal deficit and an explosion in the size of the nation's debt, he said.
Moreover, Lou argued that China's ageing population was likely to produce serious challenges to the fiscal sustainability of the world's most populous nation in the coming years.
"The arrival of the ageing society is speeding up, which will change the size and structure of fiscal spending in China, add to the financial burden of elderly care and put pressure on government finances," Lou said.
At the end of 2019, more than 176 million Chinese were aged 65 or older, accounting for 12.6 per cent of the population, while the number of people aged 60 and above was about 177.6 million, making up 13.3 per cent of the total population, according to the National Bureau of Statistics.
"We are facing major changes unseen in a century," Lou said.
"No matter the changes in the domestic economic and social situation, or the global economic downturn, soaring government debt and global trade frictions will all create huge uncertainties and severe challenges for China's fiscal sustainability."