China Local Governments’ Fiscal Stress May Roll Over to 2023, Think Tank Warns

China’s local governments struggled to balance revenue and spending last year, as massive tax relief, “zero-Covid” outlays, and a property market meltdown drained their coffers. One state-backed think tank warns that the fiscal strain could continue to plague localities in 2023.

The Chinese Academy of Fiscal Sciences (CAFS) on Monday published a report based on surveys with 521 city- and county-level finance departments, detailing how local governments have relied heavily on transfer payments — funds distributed by upper-level governments to lower-level ones — and accumulated huge debt piles to finance their day-to-day operations and underpin local economies.