Lack Of Money, Chinese Regional Government Fails To Pay Employees On Time: Due To Strict COVID-19 Policy?

Chinese illustration. (Wikimedia Commons/Nggsc)

JAKARTA - The economy of local governments in China after COVID-19 which has caused strict restrictions for three years has not fully recovered, causing them to lack money.

All provincial and local governments in the Bamboo Curtain Country who are short of money, auction off public schools, reduce contracts with private contractors to cut pensions.

Despite China's better economic growth than expected by 4 percent in the first quarter of 2023, many regional authorities are mired in debt, posing challenges to the country's recovery from COVID-19 and nearly three years of difficult pandemic restrictions.

Last month, Guizhou, one of China's poorest provinces located in the country's southwestern mountains, submitted a bail-out request to Beijing to avoid defaulting its debt, quoted from Al Jazeera May 12.

The Development Research Center, a research center affiliated with the provincial government, said Guizhou's debt level had become an "important and urgent issue" and became "very difficult" to pay off.

The Guizhou government did not respond to requests for comment from Al Jazeera. Guizhou is not alone in a red position.

In 2022, each of China's 31 provinces and cities, except Shanghai, reported a fiscal deficit, according to the National Bureau of Statistics.

Excessive spending on policies related to "zero-COVID" and the decline in the real estate market, has contributed significantly to local government financial woes, according to analysts.

"The government relies on rapid GDP growth and soaring land prices to pay off its debts," Shanghai-based economist and local government debt expert Cheng Juelu told Al Jazeera.

"However, the pandemic and the real estate market situation have changed that assumption," he said.

China's "zero-COVID" strategy, which prioritizes eradicating coronavirus cases at any cost, seriously burdens local governments' finances.

Many cities in China are still feeling the cost of lockdowns, mass PCR testing, and centralized quarantine, which require huge resources in terms of money and power in addition to causing severe economic disruption.

Guangdong, Zhejiang, and Beijing, China's three biggest economic powers, spent more than $140 billion (US$20 billion) collectively last year controlling the pandemic.

Above this expenditure, the government coffers lost revenue from businesses disrupted by lockdowns and other pandemic restrictions.

Hu Mingdan, a civil servant in eastern China, prides himself on getting a job known as the 'panch of iron rice', a type of job where you don't have to worry about being laid off or chasing payment.

Until last year's end, for the first time in 10 years he worked as an accountant in the local government, Hu's salary was delayed for three months.

"My colleague's salary was delayed, and it was difficult because we had a family to feed," explained Hu who lives and works in Nanchang, Jiangxi Province.

"I can't imagine what it was like before," he whispered.

Overall, 22 of China's 31 provinces experienced a decline in revenue by 2022, according to budget plans for 2023.

Facing financial pressure, many local governments reduce spending, in some cases cutting pensions, delaying salaries and reducing contract work.

In February, retirees in Wuhan and Dalian took to the streets to protest the deduction of monthly allowances offered as part of China's health insurance system.

Meanwhile, Beijing has paid attention and announced measures aimed at supporting local governments and businesses. In March, former Prime Minister Li Keqiang announced China would increase its budget deficit target to 3.8 percent of gross domestic product (GDP), up from 3.2 percent in 2022, to provide additional fiscal stimulus for the economy.

In his meeting on the economy on April 28, Politburo, China's main decision-making agency, called for strengthening local government debt management and rigorously, controlling the increase in hidden debt, as quoted by Asia Nikkei.

Despite these efforts, some analysts remain skeptical of the local government's ability to manage their debt problems and support post-COVID economic recovery.

"The Chinese government's ability to control the situation is still doubtful," Cheng said.

"The debt problem has grown over the years, and while the government's actions may provide temporary assistance, they do not address the root causes of the problem," he said.