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China Budget Dilemma Is Whether to Boost Debt or Slow Growth

  • Covid, slumping land sales, tax breaks have cut revenue
  • Options are to raise debt or curb spending, hindering growth
Updated on

China’s local governments are caught in an unexpectedly severe budget squeeze, creating a dilemma for officials over whether to boost debt or tolerate weaker economic growth.

Maintaining the Covid Zero policy is both slowing the economy and also adding huge extra costs to government budgets, which have to pay for regular mass testing, quarantine hospitals, as well as food provision and other services during lockdowns in places like Jilin or Shanghai. The mass-testing for Covid alone will add hundreds of billions of yuan, if not more, onto local authorities’ spending responsibilities beyond what was budgeted in early March.