Apart from Shanghai, all 31 provincial regions logged a deficit in the first seven months of the year, posing a threat to the economy and bond investors
Workers in protective suits set up barriers outside a building during the Covid-19 outbreak in Shanghai, China's biggest city, on June 9 2022. Picture: REUTERS/ANDREW GALBRAITH
Pressure on local government finances is likely to intensify as the Communist Party steps up Covid-19-fighting efforts before the twice-a-decade congress. Health officials this month announced a raft of measures that will be in place until end-October, including asking local governments to test residents regularly, regardless of infection levels. Lockdowns are happening with rising frequency, with Chengdu, the country’s sixth-largest city with 21-million people, being one of the most recent.
“The unique pattern of fiscal policy this year has strong implications for policymaking next year, and could significantly affect the funding conditions for the government and corporate sectors in 2023,” the economists including Lisheng Wang wrote in a note released on Monday. While local authorities are able to raise funds via bond sales, they have used up most of this year’s quota — which is set by the central government. Provinces have sold a total of ¥4.25-trillion of bonds this year, or about 87% of annual amount permitted. Of that, more than 80% are so-called special bonds, which are mostly used for infrastructure spending rather than general purposes.
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