The Gulf Time Newspaper One of the finest business newspapers in the UAE brought to you by our professional writers and editors.
With China’s Covid-zero controls in overdrive, it’s hard to see light at the end of the tunnel. But every household has to balance its checkbook, including the Chinese government.
Behind closed doors, when and how to reopen the economy must be on top of Beijing’s agenda. The upcoming party congress — a twice-a-decade event during which President Xi Jinping is expected to tout his achievements in containing the pandemic and win a third term — can be the perfect time for China to pivot away from eradicating the Covid-19 virus.
Local governments, especially those in inland areas, are going broke. Some counties’ finances must be deteriorating fast: Local officials began to deploy creative ways to boost revenue, including unusually heavy fines for selling substandard celery. One small city in the southwest Sichuan province even offered to auction off 30-year catering rights to serve its public schools. Civil servants’ pay, including for school teachers, has been cut.
District lockdowns, groceries dispatched to millions of affected households, and weekly mass testing all cost money. Meanwhile, land sales — a key income for many regional governments — slowed with the residential property slump.
China is facing a record 4 trillion yuan ($562 billion) fiscal funding gap this year, with close to half from the impact of Covid lockdowns and the rest caused by sluggish land sales, according to Morgan Stanley estimates.
So far, Beijing has been using all its past budgetary savings, supplemented by some future income, to scrape by. It front-loaded 800 billion yuan of the 2023 budget into this year. Local governments can start to tap about 1.5 trillion yuan of a special bonds quota, which got carried over from previous years because they did not need to issue so much debt. And there is a 1.6 trillion yuan unused fiscal budget from 2021. The math is tough but still works.
But what happens when 2023 comes around? Land sales are unlikely to recover as long as consumer confidence remains weak. Will Beijing tolerate a further rise in government debt — in a country that is already one of the world’s most indebted — or cut social benefits, such as pensions and universal health care for the elderly?
And yet the highly contagious omicron strain isn’t going away. Poor counties in inland China simply do not have the medical infrastructure to carry out Covid-zero protocols, even if they wanted to. In the far west region of Xinjiang, where there has been a recent flare-up, a top local official conceded that some measures, such as compulsory mass testing, may have even contributed to spreading the virus.