Chinese entrepreneurs are being held to ‘ransom’
Local governments in China warned about ‘arbitrary fines and seizures’ in a move to raise revenue
Triad-style extortion rackets have been rolled out by local governments across China to raise revenue ravished by the property meltdown. Booming land sales were crucial to keep the cash flowing into their coffers.
But the real estate crash has left them mired in unprecedented debt. In a move to plug the shortfall, local governments have resorted to “kidnapping” business entrepreneurs and forcing them to pay ‘ransoms’.
The sheer scale of the money-making operation has alarmed the Communist Party elite, distorting the official anti-corruption campaign launched by President Xi Jinping during his first term in office.
“We should implement the package of [stimulus] policies to stabilize the economy. [But] tackle issues such as arbitrary fines, inspections, and seizures,” Chinese Premier Li Qiang said earlier this week after meeting entrepreneurs.
Money, money, money:
- Local governments in China have “racked up as much as US$11 trillion in off-the-books debt.”
- But that was before the property crisis and the collapse of Evergrande Group more than three years ago.
- The knock-on effects have devastated the construction industry and left local governments struggling to sell land for development.
It will lead to another national economic disaster.
Zhou Tianyong of the Party School of the Central Committee of the CCP
Delve deeper: “So this is a significant problem, for it to make it into [Li’s comments,]” China expert Bill Bishop wrote in his Sinocism newsletter today.
Between the lines: “This again makes it clear that the squeezing of businesses for revenue by local governments is a real problem,” he pointed out.
Big picture: Zhou Tianyong, the deputy director of the Institute of International Strategy at the Party School of the Central Committee of the CCP, highlighted the extortion racket in a short article last month.
What was said: “[He called on local governments] to stop raising money by detaining private entrepreneurs, [warning] it will lead to another national economic disaster if it spreads.”
China Factor comment: Corruption in the world’s second-largest economy can take many forms. Even by corrupting Comrade Xi’s signature anti-corruption policy, which has already been used to root out his critics.