Financial Challenges Plague China’s Local Governments, Impacting Workers’ Salaries

In an unexpected turn of events, civil servants like Hu Mingdan in eastern China are experiencing delayed salary payments, reflecting deeper financial issues affecting local governments across the country. This phenomenon, once unimaginable, is now becoming more common as cash-strapped provincial and local governments grapple with significant debt burdens.

Despite China’s reported economic growth of 4 percent in the first quarter of 2023, several subnational authorities are facing financial distress, impacting the nation’s recovery from the COVID-19 pandemic and subsequent stringent measures. The financial struggles are evident as local governments resort to desperate measures such as auctioning public schools, reducing contracts with private contractors, and cutting pensions.

Guizhou, one of China’s economically disadvantaged provinces, recently sought potential bailout options from Beijing to avoid defaulting on its debt. The Centre for Development Research, affiliated with the provincial government, highlighted the urgency and difficulty in addressing Guizhou’s escalating debt levels.

The financial challenges extend beyond Guizhou, with all of China’s 31 provinces and municipalities, except for Shanghai, reporting fiscal deficits in 2022, according to the National Bureau of Statistics. Factors contributing to these financial woes include excessive spending on “zero-Covid” policies and a downturn in the real estate market.

China’s “zero-Covid” strategy, prioritizing stringent measures to control coronavirus cases, strained local authorities’ finances due to the substantial costs associated with lockdowns, mass testing, and centralized quarantine. Additionally, revenue losses from disrupted businesses during lockdowns further impacted government coffers.

The real estate market slump, influenced by Beijing’s measures to curb property developers’ reliance on debt, has exacerbated the fiscal situation. Revenues from land sales, a significant income source for local governments, have sharply declined, affecting projects nationwide.

Facing financial pressures, many local governments have implemented austerity measures, including pension cuts, delayed salary payments, and reduced contract jobs. Despite Beijing’s efforts to support local governments and businesses through increased budget deficit targets, analysts remain skeptical about the long-term effectiveness of these measures.

For individuals like Hu Mingdan and others witnessing delayed salary payments and economic uncertainty, these challenges underscore the complex task facing China in navigating its post-pandemic recovery.

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