China’s Tax Base Drastically Reduced by Three Years of Zero-COVID

Adverse consequences of prolonged lockdowns emerge

Staff enter a bank at the Bund historical area on June 01, 2022 in Shanghai, China. Hu Chengwei/Getty Images

China’s three-year “zero-COVID” approach has devastated the nation’s economy and fiscal revenue, and seriously diminished its tax base.

Looking at the scale of the impact of zero-COVID on China’s economy, Zhang Tao, an economist serving China Construction Bank’s financial markets department, admitted in an article published on a Chinese tech company’s website Sina.com on Dec. 9 that “... we also objectively recognize that the three-year epidemic has severely impacted micro-economic entities. The main body’s economic expectations have almost fallen to the bottom.”

Excluding factors affected by tax breaks and exemptions policies, the calculation shows that China’s tax base contracted by 15 percent from the pre-epidemic base level, Zhang said.

The tax base is the total amount of economic activity that is subject to taxation by an authority. Tax base and tax rate are two main factors affecting tax revenue. When the tax rate remains unchanged, increases or decreases in tax revenue  depend on whether the tax base expands or shrinks.

With gross losses in the tax base, it is difficult to achieve economic recovery in the short term simply by “epidemic prevention optimization” or “self-repair of micro-entities,” said Zhang, that is why the government is proposing to issue additional special sovereign bonds of 1 or 2 trillion yuan next year, equivalent to about $140-280 billion.

Local Fiscal Revenue Zeroed Out

The Ministry of Finance (MOF) announced on Dec. 12 the issuance of special bonds for 2022, with a total face value of 750 billion yuan (about $105 billion).

The sum of bonds, released on a rolling basis, will be used for repaying the due principal of the 2007 special treasury bonds, according to MOF during a Dec. 10 press briefing.

Special bonds are generally issued to raise funds for specific purposes, other than the fiscal deficit and immediate expenditures. Compared with special bonds, ordinary bonds are mainly used to cover the fiscal deficit.

This special treasury bond issuance makes clear that the Party is anxious about the current economic repression, said Song Weijun, a political and economic researcher focused on China affairs, indicating, “this sort of process of [closing the fiscal deficit] goes between the Central Bank and the Ministry of Finance, similar to taking money from the left hand to the right hand, without public offering to the market.” Song told The Epoch Times on Dec. 12.

It differs from the previous special treasury bonds issued in 2020 in response to the COVID-19 outbreak, which were launched through layers and layers of underwriters, financial institutions, and commercial banks, and then made public for certain investors to buy, Song said.

An almost empty pharmacy shelf that holds cold medicine, is a consequence of the COVID-19 pandemic in Beijing on December 15, 2022. Yuxuan Zhang/AFP via Getty Images

Adverse Consequences of Prolonged Lockdown

In recent weeks, sporadic mass infections are rumoured to be occurring in multiple cities and regions, and parts of the medical system, including hospitals, fever clinics, and pharmacies, are close to collapse, raising concerns over a new outbreak of COVID-19 in China.

On Dec. 7, the State Council announced the “New Ten Rules” that ease epidemic prevention controls. They include allowing asymptomatic or slightly ill patients to quarantine at home and lifting health code checks for people moving across regions. Later on, the Beijing Health Care Commission removed the total number of confirmed cases from the website, and left only general statistics.

The easing up on hardline epidemic prevention policies came on the heels of a wave of “White Paper” protests in late November, and are a way of soothing public outrage over those rules. But the authorities likely have no way to alleviate the surge in new cases while the repercussions of the Chinese Communist Party’s (CCP) adherence to tough lockdowns are emerging.

In a summary of the economic consequences of the zero-COVID policy, independent media Cold Eye Finance mentioned in a YouTube video on Dec. 8 that the strategy has depleted local government revenues and emptied health insurance coffers, leading to company closures and personal bankruptcies, while leaving mobile cabin hospitals and nucleic acid halls abandoned and huge investments wasted. What’s more, no substantive progress has been seen in vaccines and therapeutic drugs in the past three years.

“The ‘White Paper’ campaign called a halt to the CCP’s dynamic zero-clearance, as civil protesters shouted ‘Xi Jinping step down’ and ‘CCP step down,' posing a vital threat to the totalitarian power of the regime, so the CCP had to unblock its anti-virus curbs to ease the time of its downfall.” U.S.-based current affairs commentator Wei Tuo told The Epoch Times on Dec. 10.

This also proves that the domestic vaccines and lockdown measures are useless, and did not help the Chinese people to develop herd immunity. So once the authorities relax the anti-virus restrictions, massive infections could flare up around China, said Wei.

“Chinese people have long been brainwashed by the CCP, and the zero-COVID policy is [one of] the largest deceptions that Chinese nationals have ever been subjected to, at the cost of their lives and blood and tears,” said Wei, saying that “From believing in the CCP to questioning and resisting, people learned that the CCP can no longer be relied on.”

“No one will believe it [the CCP] anymore. The step-down of the CCP is doomed to accelerate.” Wei said.

Ellen Wan contributed to this article.