Local Chinese Governments in Debt Due to Zero-COVID

Employees working at a makeshift hospital that will be used for COVID-19 patients in Shanghai on April 7, 2022. CNS/AFP via Getty Images

The costs of COVID nucleic acid testing every two days and enforcing mandatory quarantine policies in China have left local governments short of funds. Over the past three years of the COVID-19 pandemic, bills have been mounting, putting enormous financial pressure on local governments in the world’s most populous country.

In the first 10 months of this year, local government spending in China grew by 11.8 trillion yuan (about $1.65 trillion) more than its revenue, according to China’s Ministry of Finance. The ever-expanding government debt poses a direct threat to China’s economy. It not only increases the risk that local authorities will default on their debts, but also limits the government’s ability to stimulate growth, stabilize employment, and expand public services.

The Toronto-based global credit rating agency DBRS Morningstar said in February that China’s high local government deficits are a serious problem. They estimate that the rising deficit and slowing GDP growth will cause China’s general government debt to rise to 50.6 percent of GDP in 2022, much higher than 38.1 percent in 2019, the year before the pandemic began.

The weak fiscal position of local governments is affecting China’s overall economy. According to CNN’s calculations based on data from the CCP’s Ministry of Finance, China’s broad fiscal deficit reached 6.66 trillion yuan (about $944 billion) in the first 10 months of 2022, nearly twice as much as a year earlier.

Zhao Wei, chief economist at Shanghai-based IFC Securities, estimates that China’s broad fiscal deficit could exceed 10 trillion yuan (about $1.4 trillion) this year, reaching the highest level in history.

The zero-COVID policy has also led to a worsening of other economic indicators. According to China’s National Bureau of Statistics, the youth unemployment rate soared to a record 19.9 percent in July this year. Total profits of Chinese industrial enterprises plummeted in October. Between January and October, profits in 41 industrial sectors in China fell by 3 percent. Nomura Securities lowered its forecast for China’s economic growth in the fourth quarter of this year to 2.4 percent from the previous 2.8 percent.

Large Number of Quarantine Facilities Under Construction

In the face of the pandemic, the CCP has been quietly constructing a large number of COVID-19 isolation facilities in China, and so far massive numbers of people have been quarantined in them as a part of China’s draconian zero-COVID rules.

Chen Chuangchuang, a Chinese dissident and director of the Democratic Party of China, told The Epoch Times on Dec. 4: “Due to this massive wave of resistance, the Xi Jinping regime has made an early gesture of relaxation of the zero-COVID policy, but all the structural problems have not been solved— whether it’s medical resources or vaccines. Xi is unprepared for what experts say might lead to millions of deaths. What we can reasonably guess now is that he is still building more quarantine facilities in various places for the purpose of transferring the seriously ill to the quarantine facilities and leaving them there to fend for themselves, knowing that China’s medical resources are totally inadequate and impossible to deal with the pandemic.”

In a sign of the CCP’s conflicted mindset about the zero-COVID policy, the COVID-19 nucleic acid testing stations in Beijing, which were removed in a big way over the past week, have reopened since Dec. 5 to quell public discontent. Beijing residents say that while buses, subways, and hospitals no longer require a negative COVID test, many places such as office buildings, large shopping malls, general stores, and parks still require negative tests, and the removal of the stations has made it impossible for people to get tested and thus travel.