Chinese retirees had warned that they would come in large numbers. A week after small rallies, tens of thousands of them gathered in Wuhan (center) and Dalian (northeast) on February 15 to protest against a reduction in their health coverage. The elderly mobilized during this exceptionally large protest denounced cuts reducing the amount that social security reimburses them every month.
Elsewhere, civil servants have seen their salaries cut, bus services have been cut and, this winter, heating has been rationed in northern towns. Companies have even suffered arbitrary fines, to the point that Beijing has had to call some municipalities to order. What do all these practices have in common? Lack of funds in local government coffers.
In question, the cost of measures to control the epidemic, which exploded in 2022, in particular because of the mandatory PCR tests every two or three days in the big cities. At the same time, tax revenues have fallen due to the slowing economy. In 2022, China experienced growth of 3%, barely better than in 2020, the year of the explosion of the Covid-19 pandemic, when growth had reached 2.24%. These are the worst scores for forty years.
Often excessive projects
Another black spot for local finances: the fall in real estate. Until 2021, land sales to developers provided, on average, 40% of local authority revenue. They fell by 30% in 2022. Under these conditions, one wonders how local authorities, accustomed to supporting growth through major infrastructure projects, will be able to do so in 2023. Most Chinese provinces have already published ambitious targets for increasing the gross domestic product (GDP), to more than 5% for the current year.
In 2022, China’s total debt will reach 295% of GDP, a record since 1995, the Bank for International Settlements estimated in December. Local authorities are the most exposed: it is to them that approximately 90% of public expenditure falls. Very strict debt rules, but with perverse effects, explain this situation.
To circumvent these standards, local authorities have set up investment platforms (local government financing vehicles, LGFV) to opaque operation. Result: in 2022, the total debt of cities and provinces has increased by 15%. In 2023, local governments will have to repay 3.67 trillion yuan (499 billion euros) in debt, according to calculations by Chinese data analysis company Wind.
You have 60.26% of this article left to read. The following is for subscribers only.