What Does Hospitals Taking Loans From Nurses Say About China’s Debt Situation?

City administrators in Ruzhou, China, are forcing healthcare workers to ‘donate’ money to build a new hospital. (Image: Screenshot / YouTube)
City administrators in Ruzhou, China, are forcing healthcare workers to ‘donate’ money to build a new hospital. (Image: Screenshot / YouTube)

When a business borrows from its employees, it tells a lot about how bad they are doing. In China, a similar situation exists in some regions. In the city of Ruzhou, city administrators are forcing healthcare workers to “donate” money to build a new hospital.

Building up debt

Doctors and nurses in China are paid far less than their counterparts in the U.S. As such, many of them were shocked when officials demanded that they cough up money for hospital construction. Those who did not have funds were asked to take out loans. Many have taken to social media to vent their frustration at the government for asking low wage earners to do something that the state should have done. But fearful of the government, the doctors and nurses have no choice but to comply.

Local governments in cities like Ruzhou have been borrowing for several years to fuel economic growth and create employment. The slowdown in the economy has put the brakes on the process. Since the local administrations are unable to secure funding from financial institutions, they are turning to schools, hospitals, and similar institutions to raise money. The administrators often use tools like trusts and lease agreements for this purpose so as to avoid state regulators.

(Image: Screenshot / YouTube)

Local governments in cities like Ruzhou have been borrowing for several years to fuel economic growth and create employment. (Image: Screenshot / YouTube)

“Whether it is a financial lease or trust, they are just all tools for local governments to borrow… Officials stop one today, and they come up with another tool tomorrow… That’s why China has been talking about curbing local government debts for many years and it’s still not solved,” Chen Zhiwu, director of the Asia Global Institute at the University of Hong Kong, said to The New York Times.

Over the past two years, Beijing has dispatched experienced financial regulators and state bankers to around 15 of the 31 provincial-level governments in the country to operate as vice governors. Their task — to find a solution to the huge debts taken on by these provinces. However, it is doubtful to what extent the appointed officials will be able to tackle the provincial debt build-up, since the local authorities themselves have a vested interest in making regional banks give out loans to fund their projects.

The debt problem

A recent report by the International Monetary Fund (IMF) warned that China’s financial system has several vulnerabilities, among which solvency and liquidity issues of small and medium-sized banks were highlighted. These vulnerabilities could amplify any economic shock and worsen the situation. The organization advised policymakers to introduce a fresh banking resolution and new measures that would reform asset management and its links to the banks.

(Image: Screenshot / YouTube)

China’s financial system has several vulnerabilities, among which solvency and liquidity issues of small and medium-sized banks were highlighted. (Image: Screenshot / YouTube)

Ratings agency Moody’s has also warned that China’s debt problem could be far worse than anticipated. “The growth in overall leverage may be understated, because some of the fastest-growing components of shadow banking are not included in TSF (total social financing)… We estimate the potential understatement to be significant, amounting to at least RMB16 trillion ([US]$2.4 trillion) or 23 percent of GDP at end-2015, equivalent to around one-third of shadow banking,” Michael Taylor, Moody’s chief credit officer for Asia-Pacific, said to CNBC TV18.

In the first quarter of 2019, China’s overall debt level apparently reached a record high. The country’s debt ratio rose by 5.1 percentage points to about 248 percent by the end of March this year, according to a report by the Chinese Academy of Social Sciences and the National Institution for Finance and Development. This is the highest level since such data began to be collected in 1993.

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