China’s local governments struggle to pay interest on mounting loan  

Provincial governments in China are at risk of default and might struggle to provide even basic services in the months to come as authorities struggle to pay off the interest on 123 trillion yuan ($18 trillion) loan, reports CNN.Strict pandemic controls and real estate crash have drained the coffers of local governments, who have spent their budgets on enforcing frequent Covid lockdowns, mass testing, and setting up quarantine centres beforethe abrupt end of Xi Jinping’s zero-Covid policy in December.

According to analysts, of the $18 trillion debt, nearly $10 trillion is so-called “hidden debt” owed by local government financing platforms that are backed by cities or provinces.

Amidst the mounting financial pressure, local governments have reportedly been cutting wages and transpiration services, and slashing fuel subsidies in the middle of a harsh winter.

Add WION as a Preferred Source

According to Chinese media reports, thousands of people in northern Hebei province struggled to get natural gas to heat up their homes in November and December.

State newspaper Jiemian reported that government subsidy cuts were partly responsible for the shortage.

In January, households in Hegang city in northernmost Heilongjiang province were alsoleft without heatafter local firms cut supply. The companies blamed lack of government subsidies for their move.

Apart from that, the provincial governments have been struggling to rake up revenue as staggered lockdowns put a dent on household incomes, leading many to reduce spending, which in turn resulted in less tax revenue.

Huge tax reliefs to support businesses through the pandemic also reduced government income.

Adding fuel to the fire is the real estate market contraction as prices of homes have been falling for 16 consecutive months.

According to reports, land sales, which contribute around 40 per cent of revenue for local governments, have collapsed.

China’s economy is facing massive headwinds, and as a result, its GDP grew only 3 per cent last, the second worst in 46 years.

In a bid to shore revenues for the local governments, Beijing had encouragedthem to borrow more money to fund infrastructure projects to boost growth.

In December, an infrastructure pushhelped boost economic activity, leading to signs of growth stabilisation.

In January,Bloombergreported that Chinese authorities were considering a record quota for special local government bonds this year.

(With inputs from agencies)

WATCH WION LIVE HERE: