Local governments in China are now struggling with insufficient finance due to prolonged Covid lockdowns, a battered property market, and an economic downturn.
At least three local governments turned to Beijing for help for raising their bond quotas but were refused.
According to the South China Morning Post, Beijing has turned down such requests from Hebei, Hainan, and Liaoning, saying that their debt quotas were sufficient and told them to consider other conditions.
Beijing set the quota for 2022 at 540 billion dollars, the same amount as last year.
As of June, China’s local governments have used the bond quota of more than 460 billion dollars.
As hit by strict lockdowns, both local and central governments face great challenges from the economic downturn.
China just released its official data last week, showing its gross domestic products grew only 0.4 %, while financial hub Shanghai contracted to 13.7% in the second quarter.
The credit rating agency Standard & Poor’s noted earlier this month that “Covid is a key driver of higher recent borrowing and deteriorating repayment metrics. Governments expanded borrowing and spending in 2020 to help the country fight the economic shock caused by Covid-19”.
It added, “as a result interest burdens rose. As budgets now slim down, the interest ratios have become more pronounced.”
Land sales play a very key source of local governments’ revenue, but recent data reflects a dim outlook on their budgets as there is no sign of recovery from a severe slowdown in China’s real estate market.
The South China Morning Post cited a note from Nomura reporting that revenue from land sales of local governments dropped sharply by 65% in June. The insufficient budgets pose significant pressure on local governments from functioning and infrastructure investment.