Local governments across China have struggled to repay debts estimated to total as much as $10,000, with long-unstable balance sheets. $23 trillion.
Not only have cities had to pay for costly “zero-corona” measures for nearly three years, but they have also been grappling with sluggish real estate, weak land sales, their main source of income, and worse-than-expected financial conditions. There must be. An economic recovery means less tax revenue.
Now struggling to repay those debts, local governments are scrambling to raise funds. And it is felt in the field.
Teachers say they are not paid. Motorists claim that parking fees are getting higher. A growing number of cities are also auctioning off public services such as school lunches, shared bicycles, the right to operate street vendors and tourist carts.
As the situation escalates, there are growing calls for the central government to intervene to calm the situation. But analysts say policymakers in Beijing face a dilemma.
Intervening too early or receiving too much support risks undermining efforts to improve fiscal responsibility. But doing too little or waiting too long could result in a default, with far-reaching consequences for China’s already slowing economy.
A spiraling crisis would exacerbate the economic downturn and undermine promises made by the Chinese Communist Party and its supreme leader, Xi Jinping, to improve living standards and what he calls “common prosperity” and tackle income inequality. there is a possibility.
Michael Pettis, a senior fellow at the Beijing-based Carnegie China Center, said that previous “half-baked” attempts to curb local government debt have “been unsuccessful as soon as the economic impact starts to materialize. It was always withdrawn,” he said. However, things may be different this time, as debt levels rose significantly during the pandemic. The Chinese government finally “seems to be serious about curbing local government debt this year,” he said.
Even before the pandemic, economists questioned whether China could continue to rely on debt-powered infrastructure and construction spending to prop up its economy during difficult times.
But sticking to the no-bailout policy announced by the Chinese government is also potentially risky. Because some of the least financially sound parts of the economy have rising costs, low incomes and few ways to borrow additional money.
“The challenge for China is that the government with the most debt is the one with the least ability to repay,” said Nicholas Borst, director of China research at investment advisory firm Ciefarer Capital Partners. That’s it,” he said, referring to the means the authorities use to pay off the debt. Borrow money for real estate and infrastructure projects.
Beijing has been adept at avoiding a full-blown financial crisis, often by simply pouring money into infrastructure. Continuing with this approach is becoming increasingly ineffective and could even undermine the long-term health of China’s economy.
“So many local government balance sheets are now under pressure from debt, which will make it difficult to meet the Chinese government’s policy spending demands,” Borst said. This means central governments will have fewer tools to kickstart the economy.
Without Beijing’s help, some governments have accelerated loans, while others have devised novel ways to cut costs, raise revenues, and secure new loans. In some cases, the costs are even passed on to government officials and the general public.
In Wuhan, where the severe and prolonged coronavirus lockdown has strained the local government’s finances, the city’s fund managers ran full-page ads in local state-run newspapers last month asking 259 companies to pay the government arrears. I urged him to pay me back “immediately”.
In 2019, Wuhan spent $1.9 billion on public health. Over the next three years, public health spending totaled $11.6 billion. This is primarily due to the cost of treating and containing the virus.
Residents in Nanning, the capital of Guangxi province, have complained of soaring prices for street parking, electric scooters and bicycles since a state-owned company was given control in 2018. $283 million loan It is based on the company’s 25-year revenue forecast, according to Caixin, a Chinese economic media outlet.
Some cities are franchising public works to increase their income. In theory, the deal should mean better services and more income, but critics say the deal could lead ordinary people to pay double. . The first time as a tax to generate utility bills and the second time to use it.
“City roads are built with taxes that everyone pays, and car owners pay fuel taxes,” one person wrote on Weibo, China’s equivalent of Twitter, about the parking controversy in Nanning. rice field. “Why should I pay for public parking in the city?”
A looming funding shortage is fueling fears that salaries and benefits for public sector jobs will be cut. Sanmenxia city in Henan province released an open letter saying 34 teachers had been working without pay for years. In response to online protests, the local education department said the problem was due to a policy shift that delayed payments to teachers who recently transferred from private schools to public schools.
In some parts of the country, the problem appears to be a systemic problem caused by decades of overbuilding rather than coronavirus spending.
Southwestern Kunming rocked by multiple earthquakes Fiscal-related corruption scandals Last week, city officials denied “rumors” that local government lenders were struggling to pay off debt, after alleged minutes of internal meetings went viral online in recent years.
Heavy spending on gravity-defying bridges and thousands of miles of roads have left Guizhou province as part of efforts to alleviate poverty in the mountainous province. strain to stay afloat. According to Chinese media, the Finance Bureau of the capital city of Guiyang said this month that “technical means of debt reduction have basically been exhausted”, and that high debt in a particular district “has a risk at any time”. “There is a possibility to do so,” he added. This report was later deleted.
Pei-Lin Wu of Taipei, Taiwan contributed to this report.
