If lockdowns and mass testing persist, “the risks to financial stability will increase,” George Magnus of the University of Oxford told CNN Business.
The protests this week throughout China show how unpopular Beijing’s so-called “zero Covid” policy has become. Now, as Beijing appears to be relaxing its controls on the pandemic, it faces another challenge: Local governments tasked with conducting mass testing and enforcing quarantines are cash-strapped, and could be forced to scale back the level of providing other vital services. important services.
A zero-tolerance policy on the coronavirus kept China out of recession in 2020. But nearly three years later, the bill is mounting, putting a heavy burden on municipal authorities in the world’s most populous nation.
If lockdowns and mass testing persist, “the risks to financial stability will increase,” George Magnus of the University of Oxford told CNN Business.
“The local governments they are under enormous pressure from the cost of maintaining zero Covid, and we can already see this in the debt sustainability of many entities and [σε] cases where public services are reduced, local assets or services are sold, etc. .”
Local governments, whose revenue is largely based on land sales, are more financially vulnerable than the central government. They spent 11.8 trillion yuan ($1.65 trillion) more than they collected in revenue between January and October, and to do so they resorted to extensive borrowing, according to data from China’s finance ministry.
Rising public debt poses an immediate threat to China’s economic health. Not only does it increase the risk that municipalities will go bankrupt, it also hampers the government’s ability to stimulate growth, stabilize employment and improve public services.
IMF intervention
“It is time for China to move away from mass lockdowns and move to a more targeted approach to COVID-19,” the head of the International Monetary Fund said days after widespread protests erupted, a shift that would ease the impact of the measures on a global economy such as China’s which is already facing problems of inflation, an energy crisis and food supply shortages.
In this context, Kristalina Georgieva urged for a “reevaluation” of China’s tough zero-covid approach aimed at isolating every case, “precisely because of the impact it has on both people and the economy”.
CNN – NPR
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