China’s budget deficit hits record $1.1 trillion

by ANKASAM Ekip

China’s broad budget deficit hit a record so far this year, showing how damaging the now abandoned Covid Zero policy and the ongoing housing slump have been to the economy and to the government’s finances, Report informs via Bloomberg.

The augmented fiscal deficit was 7.75 trillion yuan ($1.1 trillion) from January to November, according to Bloomberg calculations based on data from the Ministry of Finance. That was more than double the same period last year and larger than in 2020, when the economy was battered by the initial Covid outbreak and growth was the slowest in decades.

The worsening deficit underscores just how bad the economy was at the end of November, shortly before the government in Beijing effectively scrapped its strict policy of trying to contain Covid infections.

The lockdowns, testing and quarantine rules that were key to the Covid Zero policy put a strain on consumer and business spending, pushing the economy close to contraction in the second quarter. A surge in infections this quarter has already caused a drop in retail sales in October and November.

The Covid policy was also increasingly expensive to maintain. Local governments had to bear huge costs to test and quarantine residents, while their income from land sales and taxes plummeted amid a slump in the housing market.

With Covid infections now sweeping across the country, local governments are unlikely to see an immediate improvement in tax revenue and finances. Healthcare spending is likely to jump as more people fall sick, even if spending on testing and quarantines fall. There’s also little immediate prospect for an improvement in the property market, which will likely keep land sales revenue subdued.

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