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The so-called iron rice bowl, a Communist Party's term for guaranteed job security, seems less secure now, with rumors of large civil servant pay cuts. But are they true? There are rumors on the Internet about a massive pay cut for civil servants in Shanghai. Directors have seen their annual salary drop from 240,000 to 150,000 yuan, a sharp decrease of 90,000 yuan. For those above the department level, the annual salary fell from 350,000 to 200,000 yuan, a steep decrease of 150,000 yuan. With such a drastic pay cut, it's bound to impact their enthusiasm to work. But I guess many people still think the salaries are high, especially considering it's in Shanghai, where the fiscal revenue is unrivaled by other regions.
If the salary cuts are really this severe, it could pretty much signify an even more noticeable deflation. This year, further reductions are anticipated, with the current income at around 17,000 yuan from both cards combined. Even if salaries continue to fall, it seems the saying, a starving camel is still bigger than a horse, holds true. By their calculation, annual income has dropped to just over 200,000 yuan, down a third from the 350,000 yuan they were used to. Since the outbreak of the pandemic in mainland China, the economy has been in a standstill, with news of massive salary cuts for civil servants, teachers and public sector employees beginning to surface in 2020. In June 2022, Chinese financial news website Caixin.
com reported that civil servants across many eastern coastal areas of China had been hit by a wave of salary cuts. Various self-established bonus subsidies were cancelled, with civil servant salaries being reduced by around 20-30%. The report indicated that civil servants in Guangdong, Zhejiang and Jiangsu were severely affected. A section-level cadre in Longhua District, Shenzhen, estimated that their income would be cut by more than 20%. Previously with bonuses and subsidies, their annual income could reach about 370,000 yuan. In southern Jiangsu, a deputy section-level cadre experienced a salary cut of approximately 25%, reducing their take-home pay by about 100,000 yuan.
Meanwhile, a grassroots section staff member in a town in Ningbo, Zhejiang, had their bonus, which accounted for 40% of their income, completely cut off. While civil servants with salaries might be protected from starvation, the following community worker isn't as fortunate. I am a community worker, and I want to say how hard this year has been for me. I started working in this neighborhood office in May and have been working in this community ever since. During the pandemic, we were all on the front line, responsible for contact tracing until 3 or 4 am. Now it's January 2023, and I haven't received any salary for the past nine months.
With the new year approaching and no hope of a paycheck, I really don't know what to do. It's no use talking to the leaders. They scold us and won't pay our salaries. I'm at my wits end now having to look for part-time jobs in the middle of the night just to make ends meet. Many analysts believe that the salary cuts for civil servants, teachers and others are just the beginning and the scale might soon spread across the nation. In reality, those subjected to pay cuts may still consider themselves lucky, as they are merely earning less money. In some regions, government institutions are coercing civil servants to purchase urban investment bonds.
If one aspires to be a civil servant, they must spend hundreds of thousands or even millions on these practically valueless bonds. With China's real estate market currently so sluggish, purchasing these bonds essentially equates to throwing money into the water. This method serves to fill governmental financial gaps using the salaries of civil servants. However, as civil servants and the government are essentially on the same team, it's arguably better to exploit insiders rather than the general public. A video describes how several regions in Shandong province are obliging civil servants to buy urban investment bonds. My cousin, a grass-root civil servant in Shandong, received a directive to take out a loan from the bank at a 3. 5 interest rate.
The borrowed money was to be used for buying urban investment bonds, which promise an annual return rate of 8 E to 10. Moreover, they had to find their own guarantors. The purchase requirements were set according to ranks. 2 million yuan for head of department, 1. 5 million for deputy head of department, and 500,000 for ordinary personnel. The situation is likened to courting a girl only to end up married or buying stocks only to become a full owner. In pursuit of a civil servant position, they unwittingly end up controlling the local area, right? Many elderly Chinese will remember how similar events often occurred during the economically challenging times of the 1980s and 1990s.
After China joined the W2 in 2002 and the economy started to grow rapidly, such occurrences largely ceased. Many fundraising that did occur, like that of 2013, offered returns of up to 12 annually on local loans, and people had to scramble and pull connections just to get in. But things changed post-2015 as local bonds came under regulation. So how to make money with urban investment bonds? The answer lies in pledging the acquired land to banks or raising funds from civil servants, even at not so low interest rates. However times have changed. The real estate market and economy are now struggling, and urban investment bonds have accumulated a debt of 65 trillion yuan.
Some areas are reportedly not paying dividends on these bonds for three years, and the days of pulling strings to buy urban investment bonds are over. There's a clear problem with this scenario. Why are these urban investment bonds soliciting funds from civil servants at such high costs? Doesn't this indicate that the projects they are funding have no value? If the projects were indeed valuable, it would be more sensible to get the funds from the bank at an interest rate of 3. 5%. The fact that they are instead opting to raise funds from civil servants at interest rates of 10-12% implies that the banks don't recognise their value.
Many of the projects they hold offer no returns, such as controversial ones from a few years ago like the 170 million yuan statue of Guangdong, the Chinese god of war, the 200 million yuan 2C tower and many more unfinished tourism projects. They've spent a lot of money but have seen no returns. These projects can't secure funding from banks, and as a result the only option left is to collect funds from lower level personnel out of necessity. To briefly introduce urban investment bonds, they are essentially bonds issued by urban investment companies. As we know, local finance mainly relies on the government selling land and the funds for local construction have to be raised by the government itself.
Simply selling land is not sufficient to support local construction, hence the need to borrow. Under what pretext you may ask? In 1991, most local governments established local government financing platforms such as urban, transport, cultural tourism, agricultural investment companies and so on. Since urban investments are the financing platforms of local governments, they inherently carry the credibility of local finance. Of course, in most cases, local finance can't provide explicit guarantees, so collateral is needed. Land is the best form of collateral. Once the land is acquired, building roads and parks can increase its estimated value. Involving a real estate company is even better. As long as it looks good on the bank's ledger and they can borrow money, it works.
This is how land finance comes full circle. As long as there is no problem with compliance, banks are willing to confront the government. This so-called urban investment faith is actually a rigid faith in government credit. Buying new loans to repay old ones is the only way for urban investments to maintain cash flow. After several rounds of interest compounding, the scale of the debt reaches a colossal size, making it too big to fail. By 2022, these urban investments were still issuing bonds non-stop, reaching as high as 65 trillion yuan in the second quarter, equating to an average debt of 50,000 yuan per person in China.
But now with the real estate market slumping and government finances strained, urban investments only hold two types of assets – unsellable land and a pile of loss-making infrastructure. If banks were to forcefully collect, they would inevitably face bad debts and have to accept losses. With local governments' land sales and urban investments caught in a vicious cycle, it's only natural to try to increase revenue and reduce expenditure. This explains why they are either reducing salaries or assigning civil servants the task of purchasing urban investment bonds. An article from Caixin about civil servant salary cuts has now been removed.
According to an archived copy of the webpage uploaded by netizens, the report stated that before the pandemic, the general public budget income in Zhejiang province had maintained a growth rate of around 10% for three consecutive years. In 2020, this growth rate plummeted to 2. 83%. Aside from the pandemic causing a decrease in public budget income, the reduced income from land transfers and the increased VAT tax rebate policy has also added to the local fiscal pressure. Under the influence of the VAT rebate policy, many cities along the East Coast saw a significant reduction in fiscal revenue in April this year. For now, civil servants are only facing pay cuts and their jobs appear secure.
However, layoffs are happening across all industries in China, with youth unemployment rates already reaching 20. 8%. The sluggish economy is causing a downturn in banking, forcing them to lay off employees and cut salaries. Recently, employees at Shanghai Pudong Development Bank staged a sitting protest against pay cuts, sparking heated discussions online. According to on-site videos, at least 70 people either sitting or standing can be seen on the steps in front of the Shanghai Pudong Development Bank Lu Jia Zui branch. Wearing their staff badges and face masks, they sit quietly. Security personnel stand guard at the bank entrance behind them.
In another image, dozens of employees gather in front of the bank, blocking the entrance, while city management officials maintain order among the crowd. In photos shared online, someone has put up an A4 sign against an office window with the large letters STRIKE printed on it. Some employees even claim to have received a pay cut notice, indicating reductions of 30 to 50% for regular employees and 40% for managers. The affected department is said to be the bank's credit card centre. Photos online suggest that the salary cut at Shanghai Pudong Development Bank has prompted employees to stage a sitting strike.
It's also been said that a person named Liu Yiwen declared in an internal bank communication that their salary had been reduced to 6,250 yuan per month, far less than they believed they are worth and that they were going to strike in protest. Another claim is that some monthly salary has dropped from 20,000 yuan to just 6,000 yuan. Radio Free Asia quotes a Shanghai resident, Mr Tang, who says that it's not just Shanghai Pudong Development Bank, many smaller banks began cutting salaries and benefits during the pandemic. A lot of civil servants in Shanghai are now having their salaries cut, with higher ranked officials facing larger reductions, he explains. Many of the leaders I interact with feel disheartened by the current situation.
Salary cuts are happening in Zhejiang too. Indeed, the economic situation in China is very severe. On June 15, China's National Bureau of Statistics released economic data for May, indicating a collective weakening across all key economic indicators. In May, the value-added output of China's industrial enterprises above a designated size increased by 3. 5% year-on-year, a drop of 2. 1 percentage points compared to the previous month. The total retail sales of consumer goods grew by 12. 7% year-on-year, down 5. 7 percentage points from the previous month. The nationwide industrial producer price index decreased by 4. 6% year-on-year and 0. 9% month-on-month. In the same month, the National Urban Survey revealed an unemployment rate at 5. 2%, unchanged from the previous month.
The youth unemployment rate reached a new high of 20. 8%. The highs since this data started being regularly published in January 2018. A recent report from Bloomberg states that senior officials from the Chinese Communist Party CCP have held at least six emergency economic meetings with business leaders and economists, with attendees expressing an unusually urgent tone. One participant told Bloomberg that at a meeting about two weeks ago, senior CCP officials and about 10 attendees unanimously agreed that more coordinated monetary and fiscal stimulus measures were needed. This insider said all the participants felt an urgent concern about the timing and form of stimulus measures. US-based political and economic commentator Liu Tianming believes that the central government is currently facing a dilemma.
If they do not implement stimulus measures and do not inject significant liquidity into the market, the economy will continue to decline, with all aspects on a downward trend. However, if they opt for stimulus, it will only result in a short-term effect and will fall far short of the desired outcome. In the long term, consequences would only be worse, making the economy even more dire. Therefore, the CCP is facing an apocalyptic situation, with these problems becoming impossible to resolve under its rule. Liu Tianming also said that the recent spate of emergency meetings held by the CCP can only be seen as attempts to revive a dying horse. Many of the problems are directly caused by the CCP's dictatorial system.
The nature of this regime inevitably imposes restrictions and oppression on all fronts. If the system doesn't change, any issue will become an insurmountable problem. .