Commentary
Debt weighs heavily today in China. Past articles in this space have described the origins of some of this debt, and the ill effects it has had—and will have—on China’s economy. A look at what is happening in many Chinese cities makes that burden clearer still: In some places, the weight of servicing these debts has even forced the cancellation of basic public services. As was the case when the failures of property developers first became evident, Beijing has, foolishly, made no plans to help.
Chinese cities’ debt problems have three roots. One is three years of Beijing-dictated lockdowns to implement misguided zero-COVID policies. Not only did interruptions in business activity cut deeply into city revenues, but the need for tax breaks to keep businesses afloat compounded the financial shortfall across China. At the same time, the enforcement of Beijing’s strict lockdown rules added greatly to municipal expenses, as did the need for testing and the maintenance of quarantine centers. According to a recent provincial budget report, these activities added the equivalent of $22 billion to city expenses over the last three years—in the province of Guangdong alone….