The Chinese government faces a growing shortfall of cash, analysts say, as they predict an increase in debt to fill the gap.
In a report last week, Ting Lu, chief China economist at Nomura, and his team said the latest wave of Omicron and the widespread lockdowns in place since mid-March have resulted in a sharp contraction in government revenue, including land sales revenue.
They estimate a funding gap of about 6 trillion yuan ($895.52 billion) — roughly 2.5 trillion yuan ($375.3 billion) in decreased revenue due to tax refunds and weaker economic production, and another 3.5 trillion yuan ($525.4 million) of lost land sales revenue.
“Much of the incoming ‘stimulus measures’, be it special government bonds or incremental lending by policy banks, will be merely used to fill this funding gap,” the Nomura analysts said.
It’s that 3.5 trillion yuan ($525.4 million) figure they expect will be hard to fill, and they listed several measures, from using fiscal deposits to increasing borrowing, that could be used to make up the shortfall.
Even before the latest Covid outbreak, land sales, a significant source of local government revenue, have plunged following Beijing’s crackdown on real estate developers’ high reliance on debt.
Local governments are also responsible for implementing tax cuts and refunds that Beijing has announced to support growth.
The Japanese bank and analysts from other firms did not share specific figures on how much additional debt might be needed.
But they pointed to growing pressure on growth that would require more support from debt.