Budget deficit nears ‘record $1 trillion’ in China; Report

During the year’s first nine months, China’s overall fiscal deficit reached a record high. According to estimations by Bloomberg, there was a 7.16 trillion yuan ($980 billion) deficit in the budgets for all levels of government. This is a record for any comparable time frame and almost triples the 2.6 trillion yuan shortfall experienced from January to September of the previous year.

The Chinese government has struggled to make ends meet this year. The cost of monitoring and testing people has increased as a result of the frequent lockdowns of large cities to stop Covid outbreaks. The early-year lockdown in Shanghai and other cities led to a nearly stagnant second quarter for the gross domestic product, but it rebounded to 3.9% in the third quarter.

Activity in the services sector contracted last month for the first time since May. General public revenue fell 6.6% from a year earlier, slowing from an 8% drop in the first eight months. Most of the tax breaks were doled out in April-June, which has led to an improvement in revenue.

Local governments are not permitted to purchase land with borrowed funds or ‘inflate’ their land-sale income through purchases by SOEs, according to the Ministry of Finance (MOF). Land has not been purchased by real estate developers because of their persistent cash problems. In the first nine months, total government spending increased by 6.2% year over year to 27.1 trillion yuan, compared to a 6.3% increase from January to August.

China will increase its special bond limit by 500 billion yuan, which will be used to finance infrastructure projects. This year, the domestic demand has been greatly aided by the robust government investment. Nevertheless, China will have to raise its official deficit to more than 3% of its GDP in the upcoming year. Although Beijing projected a 2.8% target deficit for this year, a higher deficit will be required to address fiscal constraints.

Other release highlights include:

• Deed taxes, which are collected when a property is purchased or sold, had a 27.1% year-over-year decline from January to September.
• Tax revenue from vehicle purchases decreased by 30.9% during the period as a result of a decision to cut the charge paid on select new passenger automobiles in half.
• Tax revenue on corporate and individual income increased by 2.1% and 9.1%, respectively. However, spending on the transfer of state-owned land use rights, some of which is used to fund infrastructure, plummeted by 15.2% to 4.4 trillion yuan.