As China’s broad fiscal deficit hit a record high in the first nine months of this year, an analysis shows that it is dealing with troubles from inside and outside the country.

China’s Ministry of Finance on October 25 released the government’s fiscal data for the first three quarters of 2022.

During the period, the general public budget revenue was 15.3 trillion yuan ($2.1 trillion), and the general public budget expenditure was 19 trillion yuan ($2.6 trillion), generating a budget gap of 3.7 trillion yuan ($510 billion).

In terms of government funds, the revenue was 4.6 trillion yuan ($630 billion), and the expenditure was more than 8 trillion yuan ($1.1 trillion), creating a gap of 3.4 trillion yuan ($470 billion).

The so-called governmental funds refer to monetary funds with particular purposes that are collected from citizens, legal persons, and other organizations. Governments at all levels and their subordinate departments collected them, mainly for infrastructure and public utilities.

Government funds are the second largest source of fiscal revenue for the Chinese government after tax.

Thus, the Chinese government incurred a broad budget deficit of 7.16 trillion yuan ($1 trillion) in the first nine months of 2022.

That figure is almost more than double the size of the deficit in 2021. The Ministry of Finance reported last year’s deficit of 3.57 trillion yuan ($490 billion).

According to experts, China’s financial burden has reached its limit.

Song Weijun is a political and economic researcher at Tianjun. He has 27 years of experience in China’s financial sector.

He said China’s fiscal deficit has continued to increase with bigger expenditures and smaller revenue. The official data indicates that the deficit rate, or the fiscal deficit ratio to the gross domestic product, has exceeded its envisaged limit of about 2.8%.

That means finance at all government levels is stretched.

Song said that the world’s second-largest economy is facing internal and external troubles.

Inside the country, Covid pandemic prevention measures are requiring colossal spending. Nucleic acid testing has been increasing, and some places have recently issued documents requiring people to pay at their own expense for Covid testing. Song said it means the financial burden has reached the limit.

Meanwhile, the sluggish real estate market has also affected local government land finances.

China’s land sales revenue fell 26.4% year-on-year in September, following a 4.9% drop in August, due to the still-stretched financing conditions of real estate developers and the real estate market sentiment. In the first nine months of this year, revenue from land sales declined 28.3% year-on-year to 3.85 trillion yuan.

Due to the weak real estate market, the local governments in many places have recently extended the period of preferential policies for home purchases. 

According to statistics from the China Index Academy, as of November 1, more than 300 provincial and municipal governments have adjusted their policies to stimulate the real estate market.

The Middle Finger Research Institute on October 31 released the “Sales Performance Ranking” of Chinese real estate developers for the first ten months of 2022. Accordingly, the total corporate sales of the top 100 leading real estate companies was 6.1 trillion yuan ($850 billion), a year-on-year decrease of 43.4%.

Outside China, the U.S. Federal Reserve raised its benchmark interest rate by another 75 basis points on November 2. 

Song Weijun said that the increase in U.S. interest rates has led to the continuous outflow of funds from China, which is another blow to the communist regime.

Yang Weimin is a former deputy director of the Office of the Central Committee of the Chinese Communist Party and a figure of the party’s economic think tank.

In an interview with China Economic Weekly, he warned that China must maintain economic growth within a reasonable range in the next five years. Otherwise, it will bring a series of economic and financial risks.

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