The zero covid policy, pushed to the extreme in 2022, cost the governments of cities and provinces dearly, while the fall in real estate complicates the equation.
By Simon Leplâtre (Shanghaï, Correspondence)
Chinese retirees warned that they would come in large numbers. A week after small rallies, tens of thousands of them met in Wuhan (center) and Dalian (northeast) on February 15 to protest against a reduction in their health coverage. The elderly mobilized during this exceptional protest denounced cuts reducing the amount reimbursed for social security every month.
Elsewhere, civil servants have seen their wages amputated, bus services have been removed and this winter was rationed in northern cities. Companies have even undergone arbitrary fines, to the point that Beijing had to remind the order some municipalities. The point in common to all these practices? The lack of funds in the funds of local governments.
In question, the cost of measures to control the epidemic, which exploded in 2022, in particular because of the compulsory PCR tests every two or three days in major cities. At the same time, tax revenues fell because of the slowdown in the economy. In 2022, China experienced growth of 3 %, barely better than in 2020, the year of the explosion of the Pandemic of Covid-19, when growth had reached 2.24 %. These have been the worst scores for forty years.
Projects often disproportionate
Another black point for local finances: the fall in real estate. Until 2021, land sales to promoters ensured, on average, 40 % of communities revenues. They dropped by 30 % in 2022. Under these conditions, one wonders how local authorities, accustomed to supporting growth thanks to major infrastructure projects, will be able to do so in 2023. Most of the Chinese provinces have already already published ambitious objectives of rising gross domestic product (GDP), more than 5 % for the current year.
Last year, Total Chinese debt reached 295 % of GDP, a record since 1995, estimated the bank of international regulations, in December 2022. Local communities are the most exposed: it is that approximately 90 % of public spending return. Very strict debt rules, but with perverse effects, explain this situation.
To get around these standards, communities have set up investment platforms (local Government Financing Vehicle, LGFV) with opaque operation. Result: in 2022, the total debt of cities and provinces increased by 15 %. In 2023, local governments will have to reimburse 3,670 billion yuan (499 billion euros) of debts, according to the calculations of the Chinese Wind data analysis company.
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