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Three Ways Xi Might Respond to China's Fiscal Bankruptcy

China's financial picture is bleak and Xi Jinping will have to act decisively to maintain power. And that could mean paving a potential path to war.



China's President Xi Jinping in Xi An in May. (©Reuters)

China is experiencing a significant economic slowdown. Part one of this report analyzed official tax figures to understand the severity of this situation. Beijing is grappling with a long-term drop in fiscal revenue, with the real estate crisis having a significant impact. Part two explores how China's economic downturn is affecting everyday lives. Crucially, it also examines three potential actions that Xi Jinping might consider to maintain power during this critical juncture.

Last of two parts

Part one: A Big Turning Point in China's Fiscal Bankruptcy


Restroom Fees

We have seen a lot of numbers. How do things look in daily life? Here are a few examples.

The above is a notice posted outside a public restroom in Kunming, the capital city of Yunnan Province.

The notice states that because the municipal government had not allocated funds to maintain the daily operation of the public restroom since January 2022, the public restroom could no longer be kept open for free. A usage fee of ¥0.5 CNY ($0.07 USD) has been charged since June 19, 2023. 

Unpaid Salaries

This post, published on the Chinese social media platform Weibo, states that civil servants in Nanjing, the capital city of Jiangsu Province, have started to go unpaid. Jiangsu Province is the second wealthiest province in terms of GDP in China. Even so, civil servants in the provincial capital are apparently unable to draw their pay. Various district governments are having to borrow money to pay salaries.

Furthermore, the post states that teachers, healthcare workers, and researchers in Nanjing's public institutions will face pay cuts and layoffs. Civil servants will also face pay cuts and layoffs.

This chat record says that civil servants in Yunnan Province are also not receiving their salaries.

Bus Services Disrupted 

This notice was issued by the Dongkou (洞口) County Bus Company in Hunan Province on September 23, 2023. 

In essence, it states that the local government has not provided subsidies for three years, resulting in significant operational losses for the bus company. The company owes its employees over ¥10 million CNY ($1.4 million USD) in unpaid wages and pension insurance. Therefore, they have decided to suspend all bus routes starting from September 30, 2023.

Temples Shaken Down

This post states that in March 2023, the Hebei District government in Tianjin had no money to pay salaries. They borrowed several billion yuan from a Buddhist temple called Dabeiyuan (大悲院) to sustain themselves. 

However, by July, the Hebei District government ran out of money again and asked Dabeiyuan for more funds. 

Dabeiyuan declined, stating that for thousands of years, it has always been that secular society donates money to temples, not the other way around. Why is the government now asking for more from us? The temple asked, and called the situation "utterly ridiculous."

Dabeiyuan's refusal sparked a backlash. On September 11, 2023, the Hebei District in Tianjin convened a meeting of various departments, including public security, judiciary, fire department, urban management, health, and industry and commerce. The purpose of the meeting was to carry out a so-called "special rectification" in the area where Dabeiyuan is located. This is clearly retaliation against Dabeiyuan for refusing to lend the Hebei government any more money.

Pension Cuts, More Unpaid Salaries

This report from mainland official media states that the Tianjin public transportation system has been delaying payments to employees since June 2023. The public transportation system primarily relies on government subsidies. It incurred nearly ¥700 million CNY ($95.83 million USD) in losses in 2022.


A similar situation has also arisen in Beijing. The Shunyi District government there has had to borrow money from Chaoyang District to pay salaries.

This post says that retirement pensions for retired teachers in Guangzhou City have been nearly halved. 

This post from the Chinese media outlet China Newsweek states that multiple Kunming subway employees have reported that they have been owed salaries for several months.

This video shows that urban management police in Maoming City, Guangdong Province, were also protesting. The banner they hold reads, "The new officials don't recognize previous agreements. Give back our jobs." 

From this, it's clear that these individuals have likely been laid off.

Urban management police are a tool used by various cities to suppress the public on behalf of the government, and it appears that the Chinese Communist Party (CCP) can no longer afford to maintain them.

Financial Difficulties Across China

The above are some random posts found on social media. The evidence is anecdotal, but clear. The situation in the PRC is very dire. All across China, from provincial capitals to small towns, from north to south, the same financial difficulties are hitting the country.

There is another factor to bear in mind. In 2022, China was still under strict lockdown. And yet, the revenues for 2023 are even lower than they were in 2022. No lockdown, but still the situation is worsening. What does that mean?

The handwriting is on the wall. The CCP will finally have to face the situation of a rigid decline in fiscal revenue. This means a significant decrease in government cash flow, likely leading to a cash flow interruption. 

The big question is, what will the CCP do in this situation?

Xi Jinping's Three Potential Choices

Economist Lao Man believes that the CCP authorities have only two choices. 

The first is to accept the break in cash flow and allow local debts to default. This will mean the bankruptcy of local finances, and even the failure to pay salaries to local civil servants. 

If this happens, the authorities will be unable to maintain normal administrative order. Even the police departments will be unable to handle cases properly, leading to chaos in the entire society. The second choice is to continue printing money recklessly, resulting in potentially runaway inflation. 

President of China Xi Jinping attends the plenary session during the 2023 BRICS Summit in South Africa on August 23, 2023. (©GIANLUIGI GUERCIA/Pool via REUTERS)

Choosing this path would essentially be for the survival of the CCP's finances. This means the government would stay in business temporarily, but only by robbing the wealth of all Chinese people. The end result would be economic collapse and widespread misery. The public would either resist or be forced into hardship.

Lao Man believes that, given the backdrop of a prolonged decline in fiscal revenue, the CCP authorities have only these two choices. 

However, Lao Man adds that if a third option must be considered, it's the one that terrifies everyone: war. 

The CCP could start a war. It must be a full-scale war, big enough to keep the entire country's economic machine running.

'Solidifying Rule Forever'

Former People's Liberation Army Navy (PLA-N) Colonel Yao Cheng was a staff officer in the CCP's Navy Headquarters. Col Yao believes that Xi Jinping is currently facing increasing pressure from within the party and internationally. This situation, if sustained, could make Xi feel suffocated.

Therefore, Col Yao says, Xi has only two choices. First, to give up power and step down, which is currently unlikely. Second, to choose war as a last resort.

Once a war begins, Xi Jinping can implement military control internally, silencing any opposition. Strict wartime regulations will be enforced. 

Externally, Xi believes that he has millions in his army and a population of 1.4 billion. He can mobilize the entire nation at any cost. He may be calculating and thinking, "What can the United States do to stop me?"

Therefore, Yao Cheng believes that regardless of how the US and Japan may intervene, this potential war is already set in motion. Col Yao thinks that Xi believes once he seizes Taiwan, his rule will be solidified forever.

Taiwan contingency
Image of a simulated attack on Taiwan from mainland China posted by the Chinese military's Eastern Theater Command on its official WeChat account on April 10. (©Kyodo)

Taiwan in the Crosshairs

JAPAN Forward readers will know that China's military and government have been wracked by a series of purges. Yao Cheng stated that the fundamental reason for the purge of the PLA's Rocket Force and Equipment Development Department was the top-down elimination of those who fear war.

Some argue that the purge was also due to the extreme corruption within the Rocket Force and Equipment Development Department. Corruption is said to have led to a decline in combat capabilities, jeopardizing Xi Jinping's plans to attack Taiwan.

In any event, it is said that Xi Jinping was so angered by the situation that he arrested about 200 people inside the army.


Yao Cheng stated that currently, the PLA Air Force has one hundred brigades and that the number of Navy warships can reach nearly 500 within three years.

Taking the Lead to Survive

In addition to this massive manpower, China has short-, medium-, and long-range missiles, as well as long-range artillery. These can execute precise surgical strikes in multiple waves, leaving Taiwan defenseless.

When the time is right, the PLA may attempt a massive crossing of the Taiwan Strait, sending thousands of boats simultaneously.

Previously, there were also warnings that the CCP might suddenly launch a strong offensive using a large number of civilian fishing vessels, catching the international community off guard.

Whatever the tactic, the South China Sea, East China Sea, Yellow Sea, and China-India border issues will be temporarily set aside as PRC forces break through the first island chain. Such a move would pose a direct threat to the United States, Japan, and South Korea. This breakout strategy aims to gain a strategic advantage by taking the lead, ensuring the PRC stays ahead afterward.

In the game of Go, this is called "one move alive, every move hereafter will be alive."

More Troubling News on the Potential Path to War

In addition to the above information, there have recently been two more important pieces of concerning news.

One is that Shi Zhengli, the "batwoman" from the Wuhan Institute of Virology, has just warned against another potential deadly pandemic.

The other concerns Xi Jinping's plans. Zhou Lanjian, a former Chinese journalist, has revealed that according to his source in China, Xi Jinping's power is still very solid and stable. Zhou's source says that Xi is planning something very big, together with Russia

Russian President Vladimir Putin and Chinese President Xi Jinping in Moscow, Russia on March 21, 2023. (©Sputnik/Grigory Sysoyev/Kremlin via REUTERS)

While Zhou doesn't have the details about what Xi Jinping is planning exactly, the financial picture in China is bleak, and Xi will have to act decisively to maintain power.

Even based on the CCP's own data, it is clear that the Party's fate of financial ruin is sealed. We must pay attention, very carefully, to how the CCP will respond after bankruptcy and whether they will indeed launch a war.



Author: Jennifer Zeng

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