by John Ai

China’s local governments are already in trouble due to debts. Infections are increasing with 37,000 cases in March. Xi Jinping downplays the impact on the economy of repeated lockdowns. Testing costs 24 to 48 yuan per person. In the most populated areas, the annual health budget per capita is 200 yuan. Fiscal stimulus will increase the debt burden of local and regional authorities.

Rome (AsiaNews) – China’s zero-COVID policy overshadows the fiscal sustainability of local governments burdened by debts.

Analyses point out that the zero-tolerance policy vis-à-vis the highly infectious virus puts major pressure on the balance sheets of local governments. Faced with the latest wave of lockdowns, the authorities have to balance the cost of the stringent virus prevention policy and debts.

China is seeing the most rapid increase in COVID infections since the end of strict lockdown imposed in Wuhan two years ago, while the authorities are still clinging to the zero-COVID approach. Chinese health authorities have reported more than 37,000 cases this month.

The central government says it is following a “dynamic” approach. For example, in Shenzhen (Guangdong) restrictions were eased today after a week of total lockdown. In the southern province, many electronics manufacturing plants are idle while others operate but only in bubbles.

Jilin province in northeastern China, where most infections are found, has been under complete lockdown for a week. China’s financial centre, Shanghai, which had resisted a complete lockdown, also began to impose a zero-COVID policy and closed some areas.

President Xi Jinping reiterated the approach at the meeting of the politburo, China’s top decision-making body. He also gave instructions to “curb the spread of the epidemic as soon as possible” so as to “minimize the impact of the epidemic on the economy and society”.

An analysis by Tianfeng Securities, an investment bank, notes that the recent viral outbreak is the biggest macroeconomic event in China. Its analysts say that pandemic control policies are globally changing.

There is an increasing possibility of adjustment in China, according to a report of Hong Kong-based newspaper South China Morning Post. An analysis by Moody suggests that if the lockdown continues, the pain will possibly stretch into the early part of the second quarter.

China’s strict virus containment measures rely on a strict lockdown, mass testing and quarantine. Xi Jinping’s latest instructions to minimize the impact could be seen as a hint that the authorities plan to adjust the policy, though no concrete measures can be currently seen.

China’s central government offered funds to local governments in 2020to help them in epidemic prevention. However, since 2021, local governments have to rely on their own revenues.

Faced with the crisis of the real estate market last year, Beijing is tightening the grip on local government debt, which affects the ability of local government to raise funds.

The South China Morning Post reports that the estimated cost of mass testing is 24 to 48 yuan per person. According to government data, this is a huge burden for a region with a population of over a million where the annual medical expenditure is less than 200 yuan per capita.

Beijing’s expected economic growth has been set at 5.5 per cent in 2022 with local governments ordered to accelerate infrastructure construction.

In the context of the current zero-COVID policy, keeping growth targets and cutting debt will be a challenge to local governments.

Analysts note that Beijing may allow stimulus measures and deficit to boost growth, which means that local government debt will continue to rise.

In addition, the political cost of maintaining the zero-COVID policy is enormous. Recently, more than 20 local governments officials were sacked for mishandling the epidemic during the latest outbreak.

Chinese authorities saw the zero-COVID policy as a political victory and a sign that world leadership has been shifting over the past two years from the US to itself.

For Paul Krugman, winner of the Nobel Memorial Prize in Economic Sciences and columnist for the New York Times, the trend is reversing since China’s zero-COVID policy is extremely disruptive given the highly contagious Omicron variant and the cost of draconian lockdowns is unsustainable.

• china
• covid-19
• pandemic
• zero-tolerance
• lockdowns
• growth
• xi jinping
• health costs
• debt burden