China’s National Audit Office on Tuesday called for a new round of fiscal and tax reforms, better debt management and also the end of credit supply to so-called zombie companies after it found funds had been misused during its annual check of government spending.
“Based on audits, some of the issues in economic and social development stem from incomplete and inadequate institutional mechanisms, as well as a lack of financial and legal awareness in certain regions ,” auditor general Hou Kai said in his report to China’s top legislature.
“Also, they are owing to inadequate implementation of reform and development measures.”
The audit annual report, which is widely used to assess government operations and enforcement of local implementation of central government policies, often reveals embezzlement or misuse of funds by ministries or subsidiaries.
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What does it mean for the world when Chinese consumers tighten their belts?
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The latest report found a wide range of problems in areas including employment benefits, credit allocation and local debt management.
Tax agencies were found to have not provided tax deductions of 127.3 billion yuan (US$17.5 billion) for 27,500 eligible firms, while providing 2.4 billion yuan of tax preferences for 2,568 unqualified firms.
The audit office found that implicit local borrowing – which the central government often refers to as so-called hidden debt -still existed as state-owned firms in 24 regions raised 37.3 billion yuan of public funds through local exchanges to pay maturing debt and their workers. This resulted in 11.2 billion yuan of implicit debt being formed.
Also, some state-owned banks were found to have deviated from Beijing’s order to support the real economy, with four unnamed institutions allocating 68 billion yuan of loans intended for the innovation field to other areas.
We need to check frequently appeared economic problems
During the audit of social security benefits, the agency found that 109,000 people eligible to claim such benefits had not received assistance from the government, while 130 million yuan of funds had been misused on fake work contracts.
“We need to check frequently appeared economic problems,” Hou added.
“We should insist on reviewing them from a reform perspective and also solving them through reforms.”
The auditor also investigated 582.4 billion yuan in budget allocations for 41 central departments and 346 affiliated units between November and February.
Since May 2023, it had disclosed more than 310 cases of violations involving more than 1,200 people, with the main issues involving regional corruption and extracting policy dividends.
