China’s fiscal conditions have deteriorated sharply so far this year, pushing the country’s budget deficit to widen to an all-time high level.
Based on data from the Ministry of Finance released on Tuesday, October 25, Bloomberg calculated that China’s broad fiscal deficit hit 7.16 trillion yuan ($1 trillion) in the first nine months of 2022.
This gap is almost three times the deficit of 2.6 trillion yuan reported in the first nine months of last year, and a record high for any comparable period.
The record budget deficit means that the governments at all levels are extremely short of money.
In a comment issued late Tuesday, Goldman Sachs Group said that China’s fiscal conditions have just confronted significant challenges since spring this year.
A sharp contraction in land sales, large-scale tax rebates and deferrals, and more spending on COVID pandemic control measures has taken a toll on the country’s budget.
In the first nine months, the Ministry of Finance data showed that total revenue from the general public and government fund budgets was 19.9 trillion yuan ($2.8 trillion).
General public revenue dropped 6.6% from a year earlier.
Meanwhile, the fiscal spending surpassed the income, reaching 27.1 trillion yuan ($3.8 trillion) in that period.
The government expenditure increased 6.2% from a year earlier.
According to Bloomberg, a housing market slump this year has eroded the Chinese government’s income sharply.
Revenue from land sales declined 28.3% year-on-year in the first nine months of this year to 3.85 trillion yuan.
In addition, coffers of provinces and cities have been drained after they implemented trillions of yuan of tax rebate and fee reduction measures to support local businesses.
Meanwhile, local authorities had to increase spending on controlling the COVID outbreaks as major cities imposed the repeated lockdowns to contain the pandemic.
The lockdown of financial hub Shanghai and other cities earlier this year pushed the country’s economy to near stagnation in the second quarter, before it rebounded to 3.9% in the third quarter.
The services sector, accounting for more than half of the Chinese economy, contracted in September for the first time since May.
Due to the pandemic, big cities imposed lockdowns to contain virus flareups, keeping consumers at home, shuttering shops and restaurants, and stopping people from traveling around the country.
The Chinese government set a 2022 deficit target at around 2.8% of the country’s gross domestic product.