In the first eight months of this year, 31 provincial-level localities in China reported budget deficits of 6.74 trillion yuan ($948 billion). This is the largest deficit since 2012.
According to Reuters, the most populous provinces, such as Sichuan, Henan, Hunan and Guangdong, have the largest budget deficits.
Jennifer A. Wong, an analyst at Moody’s, said, “With the slower growth this year, we expect fiscal deficits for regional and local governments will remain substantial, reflecting the property slowdown and lingering effects of the coronavirus shock.”
Local governments set local government financing vehicles (LGFV) in China to seek funding for infrastructure and public welfare projects.
According to a report by Moody’s, about 380 billion yuan (nearly $53 billion) of LGFV bonds will mature in the next 12 months.
Therefore, according to Reuters, this year and next will be the most stressful for local governments in China.
Under financial pressure, the provinces of Shandong, Shanxi, Henan, Zhejiang, and Tianjin city announced that they have all cut investment budgets for local public agencies in recent months.
Nie Wen, the Shanghai-based Economist at Hwabao Trust, commented that, given the above challenges, coupled with weak exports, low prospects for a recovery in consumption and external uncertainties, including the conflict in Ukraine, will put more pressure on high-ranking officials to boost the Chinese economy by 2023.