A $1 Trillion Headache: China’s Local Fiscal Shortfall Poses Broader Growth Risks
BEIJING—By any account, $1 trillion seems huge. That’s the scale of budget shortfalls facing Chinese provinces, reducing their fiscal firepower to fund infrastructure spending and tax cuts, and raising risks for the world’s second-biggest economy in 2023.
The timing couldn’t be worse for policymakers in Beijing, as the economy wobbles under the weight of global recession risks, surging commodity costs, rising geopolitical tension, and widespread COVID-19 lockdowns at home—spoiling the backdrop of a once-in-five-years meeting of the Chinese Communist Party that got underway on Sunday.
Local governments have long been a pump-primer of China’s growth, but declining state land sales revenue in the wake of an ongoing crackdown on debt in the sector has severely eroded their financial power—a situation exacerbated this year by China’s feeble growth, weak tax income, and crippling COVID-19 restrictions….